The Hindu Business Line : Gem & jewellery may face long-term Chinese threat: ICRA

ALTHOUGH India currently enjoys dominance in the world's cut and polished diamonds market, China may emerge as a viable rival, if not in the near term, certainly in the longer term, according to an ICRA report.

An increasing number of diamond processors from Israel and Belgium, and even India, are setting up facilities in China for a variety of reasons, according to the report on the Indian gems and jewellery industry.

First, the labour force there, like in India, is cheap and disciplined.

Second, high economic growth over the past decade has resulted in a significant increase in potential consumers in the high-income segment within the country. In comparison, India has to rely almost solely on exports.

Lastly, the quality of Chinese workmanship is steadily improving. However, India still has an overwhelming advantage.

China processes an estimated 2.4 million carats of diamonds annually, compared to 180 million carats in India.

It has about 0.02 million persons working in the industry, compared to India's one million plus.

However, China has rapidly become the world's second largest diamond manufacturing centre, when measured in manpower terms. Technology is another area where the Indian industry faces a long-term threat from China.

In 2002, India was the world's leading diamond cutting and polishing centre, accounting for 53 per cent share of the global polished diamond market in terms of value, 80 per cent share in terms of caratage and 95 per cent share in terms of pieces in the global production of cut and polished diamonds.

The industry has been built on polishing lower size and quality stones.

Looking forward, since India already enjoys domination in the world cut and polished diamond market in general, and smaller diamonds in particular, the scope for significant increase in market share and growth in the traditional small diamond exports is limited.

Industry leaders are now seeking further growth through processing of larger stones and manufacture of diamond jewellery.

Future growth is likely to be largely driven by the cutting and polishing of medium and large stones (currently dominated by Belgium and Israel), with higher realisations. Export data from the GJEPC also report a gradual shift in Indian exports to higher value segments, reflected in higher per carat realisations - from $181.6 in 2001-02 to $191.8 in 2002-03, and to $218.7 during April-December 2003.