Liquidity crisis: India likely to lose 'largest diamond processor' title

Domestic players are facing huge problems in raising working capital from banks post the Rs 115-bn PNB-Nirav Modi scam that emerged early this year

India is under threat of losing its title of being the world’s largest diamond cutting and polishing centre because of the ongoing liquidity crisis, regular customs scanning and hike in import duty on polished diamonds. China and Vietnam have emerged as the most business-friendly destinations for diamond processing.

Until recently, India was processing (cutting and polishing) nearly 85 per cent of the rough diamonds mined globally. Even in unfavourable demand situations, India has maintained its leadership in rough diamond processing in the past, despite the emergence of several such centres including Antwerp and Dubai. The country was considered to be processing 11 out of every 13 rough diamonds extracted from mines worldwide.

But, the threat is more this time. Domestic players are facing huge problems in raising working capital from banks post the Rs 115-billion Punjab National Bank (PNB)–Nirav Modi scam that emerged early this year. Being a capital-intensive industry, liquidity crisis hit diamond processing units hard. Apart from that, import duty hike and frequent scanning by customs at the consignment traders have also impacted the diamond processing industry.

“Not only import duty hike, but also liquidity crisis and other challenges have impacted diamond processing industry hard. The trade will potentially lose a lot of jobs in the next two quarters due to the increase in duty on polished diamonds. These diamonds are now being sent to China / Thailand (for processing by customers). The industry doesn’t have adequate finance and that will further reduce with the unrealistic collateral norms,” said Colin Shah, vice chairman, Gems and Jewellery Export Promotion Council (GJEPC), the apex industry body under the Ministry of Commerce & Industry.

The modus operandi of this business is that Indian processors import rough diamonds to cut and polish in local units. After this, they send these consignments to major trading centres like Hong Kong, Antwerp, Dubai, etc where global buyers come to purchase polished diamonds. Since no sampling is done in this business being a high-value item, diamond processors in India dispatch every single diamond to the processing centre for display to global buyers who stud them into jewellery for retailing.

“While there is no problem with sold quantity, Indian diamantaires bring unsold quantity back to India which attracts 7.5 per cent of import duty. The industry used to manage the show with up to 5 per cent of import duty which was raised to 7.5 per in September this year. The industry has already represented the issue to the government which we believe would be addressed soon,” said an industry expert.

Global players, therefore, do their processing business from China to dispatch their consignments after assortment and re-assortment to the major trading centres like Hong Kong and Singapore, he added.

Indicating the trend, rough diamond imports into India has declined by 7 per cent in volume term to 84.66 million carats for the April and September 2018 period versus 91.06 million carats imported in the same period last year. Similarly, the value of imports of all precious stones including coloured gemstones, raw pearls, synthetic stones etc have declined steeply during the first half of the current financial year versus the same period last year.

Before tightening scrutiny in the wake of the PNB-Nirav Modi scam early this year, rough diamond imports into India were rising consistently. India’s rough diamond imports jumped by 24 per cent to 189.50 million carats for the financial year 2017-18 from 153.31 million carats reported in the previous year.