The sentimental advertisements for diamonds as symbols of eternal love and relationships belies their complex and intricate journey from a mine to a consumer’s hands.

The mines for the extraction of diamonds are scattered across Russia, Botswana, Canada, Australia, and several African nations. The extraction process is rife with environmental concerns, including land disruption, water usage, and potential ecological damage.

Conflict diamonds

Conflict diamonds, which are mined in war zones and sold to finance armed conflict against governments are a contentious issue. The trade of conflict diamonds has fuelled violence, human rights abuses, and instability in countries like Sierra Leone, Angola, and the Democratic Republic of Congo (DRC).

The Kimberley Process Certification Scheme was initiated to prevent the flow of conflict diamonds into the mainstream market, but challenges persist in ensuring complete compliance and transparency throughout the supply chain. Blockchain technology is being explored as a tool to create transparent, immutable records of a diamond’s journey from mine to market, ensuring authenticity and ethical sourcing.

Once extracted, rough diamonds travel through a network of traders, often passing through various intermediaries, before reaching cutting and polishing centers, predominantly in India, Belgium, Israel, and the US. This part of the supply chain is vulnerable on account of issues such as war, supply disruptions, fluctuating demand, counterfeiting, and the concentration of the cutting and polishing industry in specific regions and a few major players.

India leads

India is the global leader of the pack and cuts 14 out of 15 of the world’s roughs. It has taken India decades to build clusters and reputations for corporates and MSMEs engaged in this sector. 90 per cent of the sector is unorganised employing 4.6 million workers. The gems and jewellery sector contributes 7 per cent to the national GDP and 15 per cent to exports ($39 billion).

On account of the Ukraine war, G7 countries plan import restrictions on non-industrial diamonds, mined, processed, or produced in Russia effective January 1, 2024. Imports of polished diamonds made from Russian rough stones processed in third countries including India will be banned from March 2024. The US alone accounts for 36 per cent of India’s gems & jewellery exports.

Russia’s diamond industry is primarily centered around the northeastern region of Siberia, notably the Yakutia (Sakha) Republic, where the Mir and Udachny mines, among others, yield substantial rough diamond production. These mines are operated by Alrosa, a Russian diamond mining company. Russia also plays a crucial role in the diamond trading market.

Brace for ban

Indian diamantaires need to be prepared by March 2024 for the import ban. As the Covid 19 episode shows, weaning away from the existing supply chain is fraught with challenges. Theoretically, it is possible to shift a manufacturing plant from China to India or Vietnam. However, in reality, the exodus post the pandemic was small and time-consuming. Shifting the supply chain becomes more difficult in the case of a natural resource like diamond as the mines cannot be shifted from Russia to other countries.

India can explore markets other than the US for its polished diamonds. Demand has been increasing in China in recent years, however, its capacity to absorb the exports slated for the US market will be limited. A vibrant domestic resale market may help in increasing the supply of natural diamonds.

Lab-grown diamonds

Another option could be to switch to lab-grown diamonds (LGDs). LGDs take away the dependence on specific countries and the environmental and ethical considerations thereof. A lab diamond costs between 60 per cent and 85 per cent less than a natural diamond with identical carat weight and grades.

India is the largest producer of lab-grown diamonds through the CVD (Chemical Vapor Deposition) technology and contributes to nearly 25 per cent of global LGD production.

Per a recent GJEPC report, India’s LGD exports increased 45 per cent in FY23 to ₹12,500 crore. Infrastructure is also strengthening as around 20-25 per cent of the existing 8,000 diamond polishing units in India have begun polishing LGDs and 15 per cent polish only LGDs exclusively. The LGD jewellery industry is currently valued at $10 billion and is estimated to touch $50 billion by 2030.

The years of experience accumulated in handling, designing, and customising jewellery for varied global tastes are bound to give India an advantage. A more resilient and responsible global supply chain will bolster the Government’s plans to increase the gems and jewellery exports to $100 billion by 2027.

The writer Parihar is a public policy professional