Prime Minister Narendra Modi’s assurance to Surat’s diamond traders that he was going to Israel to represent their interests could prove to be a shot in the arm for the city’s industry. More specifically, this could be good news
for the Surat
Diamond Bourse (SDB), a two-year-old trading platform looking to take the shine away from Bharat Diamond Bourse, India’s largest bourse functioning out of the Bandra-Kurla complex in Mumbai.
Company documents reviewed by Business Standard shows that the SDB has attracted impressive interest in its challenge to the Mumbai-based bourse even though it is still reportedly a year away from being fully functional. 3,382 applications from diamond traders to book office spaces had been accepted by SDB. In the process, the bourse has collected almost Rs 182 crore for leasing out office spaces for which land is being allocated by the Gujarat government. A letter requesting for the allotment of land was submitted by the directors of SDB to the Gujarat government in March 2016 and the money collected will be transferred once the land title deeds are transferred in the bourse’s name near Surat.
SDB, which was incorporated in 2014, has also rejected 39 applications and also kept others pending for “providing insufficient information.”
SDB’s attempt in weaning away the business from the BDB is hard but not an impossible task. The controversy-ridden BDB has been fraught with infighting with many small and medium traders finding it unviable to pay exorbitant rent for office space at the Bandra-Kurla complex. Reports suggest that many had been forced to shift to Surat
after the BDB shifted to the highly-priced Bandra-Kurla complex from Opera House in Mumbai
is a different ball game altogether. Our focus will be on encouraging small and medium diamond enterprises in the new facility. We are not looking to take away Mumbai’s business. In addition to many existing traders from Mumbai
shifting base to Surat, a lot of new ones have also been allotted space” said Dinesh Navadia, President of Surat
Despite the diamond trader bonhomie, the beneficial economics of a new bourse coming up in Surat
could spell bad news
While the Mumbai
bourse has an office space of 2 million square feet, Surat
envisages 6.5 million square feet at a fraction of the cost. Documents show that the Mumbai
bourse is packed to the hilt, with 93% occupancy reported in 2015-16. Some of the small and medium traders who had protested against the move from Opera House to Bandra-Kurla complex were assigned 334 cabins in the bourse’s business centre. But all these cabins measure up to barely 39,000 sqaure feet – just 2% of the total space leased out to some of India’s biggest diamond trading companies. The average size of each cabin given to those who faced the prospect of being priced out from Bandra-Kurla complex works out to be 116 square feet – abysmal even by Mumbai’s squeezed standards.
Dipak Shastri of Pratham Diamonds
exemplifies the dilemma of a medium scale diamond trader at the Mumbai
bourse. Shastri, a member of the bourse, was recently allotted office space in Surat
although he remains non-committal on shifting. “Surat
is the manufacturing hub and you can always get a better price than Mumbai. Surat
is many times cheaper in terms of rentals, cost of living and labour” said Shastri.
It’s not just space but also business that seems to be saturated at Mumbai’s diamond bourse.
Between 2013-14 and 2015-16, the number of rough diamond and gem parcels imported fell by 8% while the value of imports fell 11%. The value of exports of finished diamonds
and gems meanwhile remained around the same mark of Rs 1,46,792 crore (In 2015-16, the value of exports was Rs 1,46,772 crore.) However, to the bourse’s credit, the value of its exports have grown by 25% while the value of its imports have declined 9% between 2011-12 and 2015-16: an indication that more high-value finished diamonds
and gems are being traded despite emerging from a global slump in the diamond industry. The bourse ascribes the recent decline to exchange rate fluctuations in its financial statements. It states, “The rupee value to the U.S. Dollar in 2014-2015 was between Rs 59.10 and Rs 63.85 whereas during 2015-2016 it fluctuated between Rs 62.00 and Rs 68.95."
The Precious Cargo Customs Clearance Centre (PCCCC) at the Mumbai
bourse exported 70% of all finished diamonds
to two nations – Hong Kong and the US. Meanwhile, more than 80% of the rough diamonds
that landed at the complex were from Belgium and UAE. Despite the headstart the Mumbai
bourse has over Surat
in terms of infrastructure, logistics and administrative support, there is great business that still doesn’t flow through Mumbai. Surat
has the largest diamond processing industry in India, with most of the country’s manufacturers based in this city.But 97% of all diamonds
in terms of value from India were exported through the PCCCC at the Mumbai
bourse. 37% of all rough diamonds
imported by India was through PCCCC. Clearly, there is a lot of business to be diverted from Mumbai.
A Diamond Trading Centre (DTC) opened at the bourse in 2015 after it was declared a Special Notified Zone (SNZ) by the central government has also started attracting global mining giants for viewing and auctioning diamonds
in so-called ‘safe rooms’. More than 50% of the imports were accounted for by De Beers Auction Sales. The bourse claims to have 10 fully equipped viewing cabins, a sales cabin, a goods control room and a strong room with two safe vaults. Other big miners who have come calling include De Beers, Dominion Diamond Marketing NV and ARCOS East DMCC.
Despite these impressive achievements, the Mumbai
bourse has also started developing its fair share of troubles after a little over five years of operating from its new complex. There were 272 requests from diamond offices and security staff to solve cases related to fraud, misbehaviour, theft, loss and arguments breaking out at the bourse in 2015-16.
There have also been wild fluctuations in the prices of shares of the bourse being allotted to existing members. For instance, on February 27, 2015, shares of the bourse were allotted to 20 diamond companies operating from the Bandra-Kurla complex. The share price for three allottees ranged from Rs 4347 to Rs 6552. Meanwhile, the remaining allottees paid a premium of Rs 47,500 on a nominal share value of Rs 1,000 for reasons not entirely clear.
While the Surat
bourse may not be free from such difficulties when it starts operations, the Mumbai
bourse certainly faces a stiff challenge to retain its business. “The business at Mumbai
will definitely split once Surat
bourse comes up. Mumbai
won’t be completely finished but many will definitely move to Surat” said Shastri.