Russia impact: Surat diamond industry stares at massive job losses in June

The month of May offers some respite with 25 per cent workers sent on leave till June

While the annual vacation period of May has offered Surat's diamond industry some respite with over 25 per cent of workers on leave, the industry is staring at massive job losses if Russian rough imports, stuck due to US sanctions, don't fall through.

Known for polishing 9 out of 10 diamonds in the world, Surat houses roughly 6,000 diamond polishing units that employ nearly 1 million workers and clock up an annual turnover of $21-24 billion or Rs 1.6-1.7 trillion.

However, the industry has now sent over 250,000 workers on 15 days leave till June even as production has taken a hit due to lack of rough diamonds. Partly owned by the Russian government, Alrosa, which accounts for 40 per cent of world's rough diamonds supply in volume and 30 per cent in value, saw sanctions being imposed in April 2022 by the US Treasury.

While the Indian diamond industry, which is highly dependent on Alrosa's rough diamonds, was hoping for the sanctions to end, the same has forced diamond polishers and exporters to cut production due to lack of raw materials.

"Anywhere between 25 per cent and 40 per cent of workers in almost all units have been sent on leave. But the real impact of US sanctions on Alrosa will be seen in June when production has to resume after summer vacation but rough diamonds will continue to remain in shortage. There is hardly any inventory in the industry to work on rough diamonds for exports," said one of the leading Surat-based diamantaires Kirti Shah.

On its part, the Gems and Jewellery Export Promotion Council (GJEPC) has been making representations to the union government, especially to the Ministry of Commerce to intervene.

"But until that happens, the industry might be staring at huge job losses in June and July when production and exports resume and continue to peak. For now, the month of May has come as a respite since many workers anyway go on vacation and so roughly 25 per cent of them had to be sent on leave," said Vipul Shah, vice chairman of GJEPC.

According to GJEPC data, rough diamond imports in April 2022 stood at Rs 9,973 crore, April 2021 - Rs 12,640 crore, April 2019  - Rs 10,025 crore with zero imports in April 2020 due to the Covid-19 induced lockdowns. For the month of May, the year 2021 saw rough diamond imports of Rs 9,214 crore as against Rs 1,353 crore in May 2020 and Rs 6,978 crore in May 2019. As against this, the average rough diamond imports in the months of September, October and November range between Rs 50,000 crore and Rs 60,000 crore.

In such a scenario, lab grown diamonds too are not proving to be an immediate alternative if US sanctions on Alrosa continue to squeeze natural rough diamond supplies.

"It takes 6-8 months to set up a laboratory to grow diamonds. Even then, the actual production begins by almost a year since a unit would begin setting up the laboratory. Also, while supply is growing over the years, demand for lab grown diamonds is still at a marginal five per cent with 95 per cent of the market demanding natural diamonds. Hence, lab grown diamonds cannot be an alternative overnight," said Anoop Mehta, president of Bharat Diamond Bourse (BDB), one of the largest diamond exchanges in the world located at Mumbai.

However, according to Vipul Shah of GJEPC, the industry is hoping to ramp up the lab grown diamonds market from current $1.5 billion to $5 billion in the next five years. But for now, the only hope for the industry is for the rough diamond imports to be solved or face huge production and job losses.