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The Gem and Jewellery Export Promotion Council (GJEPC) has suggested exporters to voluntarily curb import of rough diamonds for 30 days from May 15 to cut losses and reduce bank debt.
Even as the diamond content in jewellery remained constant, rough diamond prices and sales have increased steadily in the last few years, squeezing the margin of cut and polishing industry.
Curtailing rough imports will reduce demand and make mining companies lower rough prices. The GJEPC will review the situation in second week of June to suggest further course of action.
Though the mining companies have achieved higher turnover and greater production, the mid-stream value addition has stagnated at $5 billion, out of a retail jewellery sales of $80 billion.
After the Covid-19 outbreak, most jewellery importing countries have declared ‘force majeure’ and made it difficult for Indian exporters to recover their dues.
In order to protect the interest of the industry, the GJEPC has suggested members may consider the option of curtailing imports of rough diamonds for 30 days from May 15.
‘Will bring in equilibrium’
The suspension of rough imports will help bring an equilibrium between demand and prices amid sharp drop in global jewellery sales.
Colin Shah, Vice-Chairman, GJEPC, said the industry may take more time to find the new normal, which could be about 20 per cent below the pre-Covid level in value terms.
With India holding a monopoly in cutting and polishing diamonds, it is only appropriate that it should have more power over pricing of diamonds, he said.
The decision to suspend rough imports will send a strong signal to banks that the industry will not increase its debt when consumers demand is at its low. The responsible decision of the industry may encourage banks not to reduce credit exposure to the industry, he added.
Given that the industry’s annual exports of about $45 billion, its exposure to banks is low at about $9.5 billion.
If the diamond sector tides over the next three months, situation should be under control before the demand picks up next year, said Shah.
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