The Hindu Business Line : Rough diamonds to squeeze gem sector profits

THE country's gem and jewellery export industry faces the prospects of shrinking profit margins during the current fiscal mainly as prices of rough diamonds have gone up and price increases in cut and polished diamonds have not kept pace.

``Prices of rough diamonds have risen by 15 per cent over the last six months but these increases have not been passed on to the consumer. This could impact profitability margins of many diamond exporting companies,'' said Mr Bakul Mehta, Chairman, Gem and Jewellery Export Promotion Council (GJEPC).

Besides, the weakening of the dollar against the rupee does not augur well for an industry, which is into imports and exports. ``The fluctuation in dollar's value against the rupee also impacts our profit margins because import is on cash-term basis while export is on due-term basis,'' Mr Mehta said.

As there is a shortage of rough diamonds, the possibility of their prices easing is being ruled out by the industry. ``There is no chance of a price softening. However, there could be seasonal price relaxation,'' he said.

Even as prices of rough diamonds are seen firm in the near future, demand for cut and polished diamonds is not expected to be spectacular. This scenario has prompted the industry to look at untapped markets, particularly the Commonwealth Independent States (CIS) countries.

``We have got startling figures of their imports. Topmost on their import list is metals and precious metals. We plan to take a delegation to CIS countries by the end of January 2005,'' Mr Mehta said.

India's cut and polished diamond exports increased by 25 per cent to Rs 27,483 crore (Rs 21908 crore) in rupee terms for the April-October period. In dollar terms, they stood at $6051.38 million ($4731.27 million).

The total basket of gem and jewellery exports moved up by 34 per cent to $8,100 million during April-October from $6,049.31 million last year. Imports during this period moved up by 25.35 per cent to $5632.83 million ($4493.80 million).

However, the US demand continues to remain stagnant, prompting the industry to look at new markets. The industry is in a much better position that it was couple of years back when war in the West Asian region and SARS had impacted buying especially in the US.

But the industry needs to keep a watchful eye on developments in neighbouring China, Mr Mehta said. ``China is a very serious threat to our industry.

It has manpower strength and a disciplined one at that. All its government policies are in place and the industry has finance.

What they do not have is entrepreneurs but they can import them,'' Mr Mehta said.

India does have an advantage over China - it has the expertise in cutting certain kinds of diamonds, he said.

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