Indian Diamond Industry

Indian Diamond industry stares at dim future

By Melvyn Thomas,TNN | Jul 6, 2015, 09.03 AM IST Times of India News

SURAT: It’s deja vu for the Indian diamond industry.

All eyes in the industry are set on Tuesday’s crucial meeting in Mumbai, where top 200 diamond exporters from Surat and Mumbai will seek a referendum to completely ban import of rough diamonds for at least one month.

A similar move to ban rough diamond import was taken in November 2008 following global economic downturn.

This time around, the concerns in the industry are not just recession, but many.

The industry is battling feeble demand of polished diamonds in key markets including the US, the Middle East, China, Hong Kong, high priced rough diamonds, inventories choked with diamonds worth over Rs 3 lakh crore, financial insecurity prevailing in the industry due to a series of defaults touching Rs 2,000 crore since November-2014, reduced bank finance, reduction in the credit period from 180 days to 60 days by the rough diamond dealers in Antwerp and the severe liquidity crisis.

Industry sources said the rough diamond prices have appreciated by 65% in the last three years, while the polished diamond prices are either stagnant or reduced by 15 to 20 per cent.

India imported $16 billion worth of rough diamonds in 2014-15 and that $23 billion worth of polished diamonds were exported in the same year.

Experts in the diamond industry have a different view on the proposal moved by the exporters to ban rough diamond import.

“Banning rough diamond import is not going to serve any purpose,” says diamond analyst, Aniruddha Lidbide.

“The real problem is that the dealers of roughs in Antwerp have considerably reduced the credit period from 180 days to 60 days, the Antwerp Diamond Bank (ADB) closed its operation on June 30 and the ABN AMRO bank has reduced loan exposure to diamond companies by 40%,” said Lidbide.

Former chairman of Gems and Jewellery Export Promotion Council (GJEPC), Sanjay Kothari, said, “Much of this is because some unscrupulous players in the industry have diverted much of their time and money to other enterprises and have indulged in all sorts of unethical practices. This is evident with the string of bankruptcies among diamond processing companies, including many large ones with valuations in hundreds of millions of dollars.”

According to Lidbide, barring 20% of the genuine diamond companies utilizing bank money wisely for the business, there are 80 per cent companies who have parked their money in other businesses like real estate. Now, these sectors are not performing well and thus the diamond companies are facing a real problem of liquidity.

A year ago, companies were getting 100% finance for rough diamond purchase from foreign banks like ABN and Standard Chartered.

Now, the same has been reduced to just 60 per cent. If a diamond company has to purchase $1 million worth of rough diamonds, he gets only $60,000 from the bank and $40,000 the company needs to pay in cash.