The Evolution of India’s Diamond Industry and Scope for the Future
Gemstones are a unique phenomenon of nature. Formed, perhaps, under nature’s direst conditions, they have been hailed not only for their beauty but also as a metaphor for resilience. These gemstones and jewellery alike, have been integral to Indian society as indicators of class, wealth, marital status etc. since the days of the Indus Valley Civilisation. Due to this historical and cultural importance, jewellery and gemstones have been objects of desire throughout history and folklore and their value has been highlighted time and time again in art and literature. Due to their unparalleled beauty, royalty from all around the world have adorned themselves in jewelry and gemstones of Indian Origin, which have thus, gained global recognition as a symbol of wealth and prestige.
India’s relationship with diamonds has been a particularly unique one. Ever since the first diamond was found on the banks of the river Krishna, India has been the centre of diamond trade. As an active participant in international commerce, India’s status has been defined by these beautiful stones. Diamonds became synonymous with prosperity. Their value was determined not only by their beauty and brilliance, but also from their strength and ability to cut glass and engrave metal.
Until the eighteenth century, India was the sole supplier of gemstones in the world, and exercised monopoly over the entire world’s diamond supply. Some of the world’s most revered diamonds, such as the Koh-i-Noor, the Blue Hope, the White Regent and the Daria-i-Noor to name a few, are of Indian origin.
Image: The Daria-i-Noor
India’s monopoly over the supply of diamonds began to dwindle during the 18th century as its mines were nearly depleted. With the discovery of diamonds in Brazil and parts of Africa, India was dethroned as the leading supplier. Companies like De Beer organised diamond mining in Africa and took over as the primary supplier. India’s role has since changed from a primary supplier of rough diamonds to the world’s largest supplier of finished diamonds.
In the 1960s, as the Indian gemstone industry began to slowly organise itself and managed to receive rough diamonds to cut and polish from the new industry giant, De Beers. Although their initial supply was small in both size as well as quantity, and were of inferior quality, the foundation had been laid. With the discovery of diamonds in Australia in 1985, India was the first to be approached as they were the best fit for the job, given the low colour and clarity of these diamonds. This triggered a boom in the cutting and polishing industry, which was aided by local banks and financial channels. As its reputation for cutting stones and extracting the most value from even the smallest pieces grew, India became the global centre for the same, offering the best technologies and prices.
Today, the role of the diamond and precious stones industry in our economy is multifold. The jewellery and precious stones (gems) sector contributes about 7% to our nation’s economy, and about 15% of our total merchandise export, with a production volume of roughly 20,000 carats ($18.66 billion) of polished and cut diamonds in the fiscal year 2020-2021. As mentioned, it is also the world’s largest cutting and polishing centre and exports 75% of the entire world’s supply of polished diamonds. (Gems and Jewellery Industry in India, Indian, Diamond, Gold, Sector, 2021).
Figure: Gems and jewelry export value from India FY 2020, by leading destination (in billion Indian rupees)
Moreover, more than 90% of the diamonds sold worldwide have been processed in India. Among some of the nations that purchase gemstones processed in India are Hong Kong (INR 675.37 bn), UAE (INR 665.2 bn), USA (INR 652.45 bn), Belgium (INR 153.85 bn) and Israel (INR 64.69 bn). The jewelry and precious gems industry employs over 4.64 million people, which is expected to double by 2022. It is also one of the largest markets for gems and jewellery in the world, contributing to about 29% of the global consumption. Subsequently, it is one of the largest contributors to the foreign reserves of the country (GJEPC, 2021).
The success of this industry can be largely attributed to industry-friendly policies practiced by the government. Recognising it as one of the fastest growing industries in the nation and its potential, the government has taken various measures to encourage the same. This includes the establishment of the Gem and Jewellery Export Promotion Council, and more recently, the relaxation of customs duties, such as allowing 100% Foreign Direct Investment through direct route, as well as the provision of grants of up to Rs. 5 crore for MSMEs, among others.
The 2021-22 Union Budget also introduced various changes in favour of the industry. Some of these changes include the aforementioned reduction of customs duties on gold and silver from 12.5% to 7.5%, and increase of duties on synthetic rough and uncut precious and semi precious stones. These amendments have been endorsed by the All India Jewellery Domestic Council (GJC) and Gems and Jewellery Export Promotion Council (GJEPC). The Malabar Group Chairman M. P. Ahammed has cited high import duties on gold as the primary cause for industry malpractices like smuggling and tax evasion, which, he has opined, should reduce with lower import duties. These have also been deemed as a necessary step to safeguard retailers who have been severely impacted by the pandemic.
Due to the government focus on the diamond industry and a rapidly growing consumer market (currently the fifth largest in the world), diamonds present a great opportunity for investment; particularly long term investment. Their compact nature, resilience and durability as well as their abiding value as a precious item make them favourites among those who are willing to wait to reap the rewards.
The global diamond market has seen an unusual growth amidst the pandemic, corresponding to the growth in e-retailers. As the demand for polished diamonds in the US surged during the holiday season this year, India imported nearly $2 billion worth of rough diamonds to meet demand and restock their inventories. This was welcomed by middlemen who struggled as the diamond prices remained stagnant at $80 billion in the past five years.
Moreover, the increase in the recent diamond jewellery sales has also been attributed to the expanding income of the Indian middle class; which is expected to grow positively with the strength of the middle class. In the midst of rising environmental and humanitarian concerns, the millennial middle-to-upper class have shown a growing preference for rubies, emeralds and sapphires over traditional diamonds, which was explicitly expressed as a sharp import spike of 150% in the year 2019 (Economic Times, 2019). With the increasing popularity of virtual sales coupled with favourable government policies and incentives, investing in gemstones seems increasingly appealing.
Though there are still some rough edges in the industry that need polishing, such as the high dependency on exports (which is currently 90% of India’s stock of raw gemstones and could cause significant loss in off-seasons where the high imports do not translate to subsequent exports), the need for skill training (which takes years of training to master) etc., the future of the jewellery and gemstone industry of India does indeed seem to be shining, shimmering and splendid.
– Ayushi Ghosh (Writer, Econ Declassified)
Edited by: Sanika Sawant (Editor, Econ Declassified)
Daria-i-Noor. (n.d.). [Photograph]. Central Bank of the Islamic Republic of Iran. https://www.cbi.ir/Page/2091.aspx
Gems and Jewellery Industry in India, Indian, Diamond, Gold, Sector. (2021, March 22). Https://Www.Ibef.Org/Industry/Gems-Jewellery-India. https://www.ibef.org/industry/gems-jewellery-india.aspx
History of Diamonds, Where Do Diamonds Come From. (2018, March 30). Brilliance.Com. https://www.brilliance.com/education/diamonds/history.
Khosla, V. (2019, November 7). Young, rich Indians have started a gem of a trend as demand for rubies, sapphires grow. The Economic Times. https://economictimes.indiatimes.com/industry/cons-products/fashion-/-cosmetics-/-jewellery
T.T.I. (2021c, January 15). Budget 2021–22: Gems, jewellery industry seeks reduction of import duty to 4%. The Times of India. https://timesofindia.indiatimes.com/business/india-business/budget-2021-22-gems-jewellery-industry-seeks-reduction-of-import-duty-to-4/.
Blue Gemstone by Jacek Dylag. Unsplash. https://unsplash.com/photos/agsdDgRW2Ps
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