How is Ukraine crisis taking away the shine of Surat's diamond industry?

Situated on the banks of Tapti -- which follows an east to west itinerary -- Surat has been a bustling industrial city for ages. It is a hub for fabric production. And, it is also the city which gives shapes to over 90% of the world's diamonds.

Inside the row upon row of run-down factories, rows of workers sit for hours at a stretch to slice and polish tiny stones -- until they take the perfect shape with 58 facets.

The journey of the diamonds which begins from mines in Russia and Australia ends in these congested lanes of Gujarat’s Surat -- from where they are sent for sale on the high streets of Europe, the US and other parts of the world.

Surat is home to over one million workers who come from UP, Bihar and several other states to eke out a living by polishing diamonds.

But the streets of Surat are not as bustling as they once used to be. And workers are not getting the amount of work which they used to get over two years ago—when the pandemic struck.

The second wave of pandemic led to an exodus of workers and a subsequent dip in production. Even as things were returning to normalcy, an altogether different challenge has emerged for the industry.

The crisis originated in faraway Ukraine when Russian President Vladimir Putin decided to send in his military into that country and, in turn, got Moscow placed under far-reaching sanctions by the US and its allies.

Partly owned by the Russian government, the world’s largest diamond mining company, Alrosa, also came under sanctions. It accounts for 40 per cent of the world's rough diamonds supply in volume and 30 per cent in value. And the Surat’s diamond industry is also heavily dependent on Alrosa’s rough diamonds.

Sanctions have now forced diamond polishers and exporters to cut production due to the lack of raw materials.  

And, at the same time, over 25 percent of Surat workers are on annual summer leave. The industry will see significant job losses in June if it doesn't receive the Russian rough diamond imports.

At present, even as production has been hit by the lack of rough diamonds, the industry has sent over 250,000 workers on 15 days’ leave till June.

Quoting one of the leading Surat-based diamantaires, a Business Standard report explains what could happen going forward.

The real impact of sanctions on Alrosa will be seen in June, which is when production will resume after the summer vacation. That's when the real problem could occur if the shortage of rough diamonds continues. Add to this the fact that there is hardly any inventory in the industry.

The Gems and Jewellery Export Promotion Council has been calling for an intervention by the Central government, especially the Ministry of Commerce. However, the council's vice chairman, Vipul Shah, has said that until that happens, the industry might be staring at huge job losses in June and July.

There's no telling when the war in Ukraine will end. In any case, the sanctions on Russia could outlast the war itself. Thus, if no steps are taken now, the shortage of Russian rough diamonds is likely to continue in the coming months. Amid all of this, there is one possible solution that the government could offer, even though it has its challenges.

There's also one option that the industry can explore on its own.

Shreyans Dholakia, Entrepreneur and Brand Custodian, Shree Ramkrishna Exports Pvt Ltd, says polishing process for natural and lab-grown diamonds is the same, some players have already shifted to lab-grown diamonds during Covid. Those dependent mostly on Russian supply can do the same now. 

However, lab-grown diamonds might not prove to be an immediate alternative if US sanctions on Alrosa continue. As the Business Standard report highlighted, it takes 6-8 months to set up a laboratory to grow diamonds. And, the actual production begins after almost a year.  

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. A disruption in supply chain will not just hit the revenue but also leave thousands of workers unemployed. It's good health is of great importance.