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The Nirav Modi-Mehul Choksi scam has thrown a long shadow on the diamond polishing and trading industry, with its hub in Surat, Gujarat. Deals are down 8-10 per cent since the incident came to the fore on February 14.
“Diamantaires do not want to take chances. Also, now, banks are tight-fisted about disbursing working capital, especially to diamantaires. This has slowed business by at least 10 per cent,” said Kirti Shah, a Surat-based diamond polisher and trader.
To make matters worse, payment cycles, too, have become longer by a fortnight.
“Earlier, a trader used to deal with 20-25 industry players; now, they are more cautious and deal with only a handful they trust. This has also slowed down cash flow,” Shah added.
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Diamond polishers and traders are seeking banks’ co-operation for disbursement of working capital. The Surat Diamond Association (SDA) is concerned about how the scam will hit credit flows.
“Banks need to be more stringent, but also co-operative in disbursing working capital,” said Dinesh Navadia, former president of SDA.
According to CARE Ratings, the total outstanding credit to the sector as of December 2017 was Rs 690 billion.
“The gems and jewellery sector reported 11.7 per cent stressed advances ratio, which was lower than the sample average,” said a report of the ratings agency. The gross non-performing assets ratio of the sector was about 30 per cent.
CARE said the export industry might also be affected by the scam.
Gitanjali Gems imported and exported gold and studded jewellery. It also had retail businesses in 200 cities in the country and abroad. Firestar Diamonds derived most of its revenue from diamond cutting and polishing. Its diamond-sorting business catered to some of the largest international players.
The CARE report estimated the shutdown of Nirav Modi’s and Mehul Choksi’s firms would have an impact of 5-6 per cent on the diamond and jewellery foreign trade in 2018-19.
In 2015-16, Gitanjali Gems and Firestar Diamonds together accounted for 5.8 per cent of the diamond and jewellery trade in India.
“Gitanjali Gems is among the largest jewellery retailers in the country. Gitanjali and Nirav Modi employed 648 and 2,200 people, respectively, according to their filings in March 2017,” said a CARE report.
It also said 3,000 people would lose jobs, and another 7,000-8,000 temporary workers at franchisees would also be rendered jobless.
