Indian diamond industry losing sparkle

Is the Indian diamond industry losing sparkle? The resplendent shine that brought billions of dollars as foreign exchange to the country has been fast dwindling over the last few years. One reason is that the industry has been hit by a beneficiation programme in Africa. Also contributing to this are: China’s aggressive ‘Africa invest’ policy and a general shift in consumer preference to electronic goods over the sparklers. These trends present a clear danger to the industry.

There has been a reduction in both the import and subsequent export of diamonds by India’s reputed jewellers and exporters. Official figures show rough diamond imports slipped from 154.20 million carats in 2010-11 to 131.40 million carats in 2011-12. Compare this figure with 2004 or 2005 when imports were as high as 182 million carats. Correspondingly, exports too have shrunk.

Consequently, it has hit the cutting and polishing centres, mostly in western India, reducing work force because of the uncertainties. People employed by the industry reportedly shrank to about six lakh from eight lakh in a matter of, say, five to six years. Thus there has been job destruction for around 2 lakh people. Coming on the heels of a reduction in employment opportunities in agriculture as well as industry, this huge loss of jobs has been painful for the Indian economy.

Also, most African countries have initiated the beneficiation programme under which they set up their own cutting and polishing centres, discontinuing the outsourcing of rough cut diamonds to India and China, which were the major hubs for this activity.

CHINA’S THRUST

China has woken up faster than India. As China was already considering Africa as a major investment destination for infrastructure, it included the diamond industry as part of the deal. It is not an understatement to say China has a vested interest in developing Africa’s infrastructure through loans underwritten by the continent’s vast natural wealth. Beijing has committed billions of dollars in the resource-rich Dark Continent — $6 billion to Congo, $8.4 billion to Nigeria and $16 billion to Ghana.

The China Development Bank (CDB) announced last year it could invest up to $10 billion in Zimbabwe’s mining and agro sectors. In 2012, President Robert Mugabe opened a new $98-million military academy erected by Chinese contractors — the project cost is being repaid by Zimbabwean diamonds. China is initiating multi-billion dollar deals for rough diamonds in exchange for goods it produces, ranging from medicines, oils, and industrial goods and services.

China’s huge investments in Africa are a danger to the Indian diamond cutting and polishing industry.

China’s overseas investment policy, first outlined in its 10th Five-Year Plan (FYP, 2001-05), has been reaffirmed in the latest 12th FYP (2011-15). While motivating Chinese firms to do business abroad , the policy seeks to give them a competitive edge by making them acquire strategic assets, securing access to natural resources, and establishing new markets for Chinese exports.

This is amply borne out by data on China’s diamond output, import and export in 2006-2011: while globally there was a 3 per cent fall in rough diamond supply, China recorded an over 20 per cent increase in its rough diamond imports in carat terms and a 55 per cent increase in value terms. Clearly, India will have to adopt strategies where it can move beyond conventional sources of diamond supply. It will also have to ensure that the diamond industry is not burdened with taxes which further hobble this industry. India cannot afford more loss of both jobs and export earnings.

The Kimberley Process Certification Scheme (KPCS) has estimated world production of rough diamonds at 133 million carats.

Major players such as De Beers have a share of 26 per cent by volume and 35 per cent by value, Alrosa has 28 per cent share by volume and 25 per cent by value, Rio Tinto has 11 per cent share by volume and 10 per cent by value and BHP Billiton has a 2 per cent share by volume.

All these figures are marked down from what they were a few years ago. De Beers alone enjoyed a market share as high as 75-80 per cent some years ago.

OPTIONS FOR INDIA

Looking for sources other than Africa, India has now asked Russia to push Alrosa for long-term supply contracts so that more Indian companies can source rough cuts from the mining giant. The move could enable India’s state-run trading company MMTC Ltd and the Hindustan Diamond Company Private Ltd (HDCPL) to apply for roughs from Alrosa.

Anand Sharma, India’s minister of Commerce, Industry and Textiles, reportedly made a request to this effect to E. Nabiullina, the Minister of Economic Development of Russian Federation during the latter’s visit to Delhi.

Diamonds are said to be a woman’s best friend, but not any longer? Consumer preferences have shifted to electronic good such as iPads, iPhones, Tablets and such others, which explains why the jewellery giants of the world advertised much less or didn’t at all in some countries, when compared to consumer electronics giants such as Apple or Samsung.

Just as China backs its trading community to the hilt and includes them in its overseas ventures, India should follow an aggressive policy towards its investments overseas. Following China’s example, the diamond industry could be part of the deal on infrastructure ventures. Government efforts are a must.

At the industry level, while the diamond traders do make money, little is being done for the betterment and livelihood and security of the workforce. Unlike other organised sector jobs, the workforce here doesn’t enjoy the benefit of PF and Gratuity.

An Export duty of 2 per cent could be levied by the Government and charged to the polished diamond exporters. The revenue raised could be used as a corpus for benefiting the diamond industry workforce, enhancing their job security and livelihood.

In the ultimate analysis, both the diamond industry (importers, exporters and others along the value chain), and the Government need to work together to restore India’s premier position. The country once produced the world’s best 2A quality diamonds from its own Golconda mines in Hyderabad.

(The author is former Economics Editor of PTI.)

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