In the first week of August, three diamond workers of Surat committed suicide in separate incidents after losing their jobs in the Rs 75,000-crore diamond industry. Diamond city Surat polishes eight of 10 precious stones exported from India.
Diamond exporters have been hit by a slowdown in the US market. Demand in the US market, which accounts for 27 per cent of India's exports, down from 50 per cent a few years ago, has dipped by 35-40 per cent in the last two years.
Exporters with high exposure to the US, who process low-end (pique) diamonds that account for the bulk of India's exports to the country, are the worst hit. They are facing a cash crunch as their payments have been delayed and banks are not financing their bills.
Exporters sell on credit and realise their payments in six to nine months, which are now taking 12 months. In some cases, exporters have not received their payments at all. Many retailers and importers, like Whitehall Jewellers and Fabrikant & Sons, have gone bankrupt.
"A lot of Indian exporters had set up offices in the US. In the last few years, 15-20 of these offices have been closed down. It's not viable to have these offices any more,'' said a Mumbai-based diamond exporter, who did not wish to be identified.
Apart from that, rising raw material (rough diamond) prices and interest rates have squeezed their margins.
Prices of low-quality rough diamonds have risen by 13-14 per cent, while those of the higher-quality stones such, as solitaires, have shot up by 20-25 per cent. However, prices of polished diamonds have been stagnant or have risen at a slower pace, adding to diamond exporters' woes.
Incidentally, the US slowdown has coincided with a spurt in demand from Asian (China) and West Asian markets, which account for 32 per cent and 21 per cent of exports from India. The growth at home has also surprised exporters.
But a changing demand profile has created a manufacturing challenge. Polishing low-quality pique stones, which are exported to the US, is highly labour-intensive, with the labour accounting for 45-50 per cent of the overall costs, while raw material accounts for another 40 per cent of the costs.
"The slowdown in the US is here to stay for a long time,'' said Mehul Choksi, chairman, Gitanjali Gems, as the US has borrowed heavily to fund the wars and owes a lot of money to the world. "We are not really affected as we are present in the retail space,'' he added.
In the last couple of years, many exporters had scaled up their facilities to cater to the US market. Many of them have been forced to cut output by a quarter and lay off people, who have gone back to agriculture or shifted to The textile industry.
Except for the US, most other markets prefer high-quality stones, where the raw material accounts for 90 per cent of the cost, with the labour making up the remaining 5 per cent. So exporters will have to decrease their workforce and realign themselves with the other markets.
"There's no charm left in the diamond business. Labourers are shifting to other industries like textile or going back to agriculture. Labourers are not interested in bringing their next generation into the diamond industry,'' said an exporter.
Exporters have also been hit by the imposition of 5-6 per cent import duty by the US from July, where India enjoyed a duty exemption earlier. The duty exemption was revoked after exports from India to the US reached a threshold level, said Sanjay Kothari, chairman, Gem & Jewellery Export Promotion Council (GJEPC).
Volatility in gold prices, which touched a high of $1,100 an ounce in March and is now trading below $823 an ounce, is also hurting export of gold jewellery, which fell by 16 per cent between April and July this year.
