Trump tariffs take the shine off Indian diamonds, expect 30% revenue cut

Crisil Ratings warns Indian diamond polishers face their worst year since 2007, with FY26 revenues projected to shrink to $12.5 billion after Trump's 50% tariff shock

India’s diamond polishers are looking at their worst year since 2007, as fresh US tariffs threaten to cut sector revenues by nearly a third. Crisil Ratings estimates suggest earnings could shrink by 28 to 30 per cent this financial year (FY26), sliding to about $12.5 billion from $16 billion last year.

 

50 per cent tariff shock

The United States, led by President Donald Trump’s administration, has slapped a 50 per cent duty on all Indian imports, including polished natural diamonds. This new levy, a combination of a 25 per cent reciprocal tariff and a 25 per cent penalty, went into effect on Wednesday (Aug 27).

   

The move follows a difficult three years for the sector, during which revenues contracted by about 40 per cent due to lower prices, weaker US and China demand, and rising competition from lab-grown stones.

 

For India’s exporters, this is a double blow. The tariff shock lands at a time when profitability is already under strain. The US accounts for around 35 per cent of India’s diamond exports, but buyers there are shifting to cheaper, lab-grown alternatives, which now make up nearly 60 per cent of the market by volume. 

All this makes passing on higher costs is seen as unrealistic, the Crisil report said.

  Analysts expect operating margins to shrink by 50-100 basis points, after already sliding by 100 bps in the past three years. Margins that stood at 5.5 per cent in FY23 are projected to fall to 3.5-4 per cent this year. 

 

Diamond exporters look for new markets

To cushion the blow, manufacturers are exploring domestic demand growth, alternative foreign markets, and new facilities in overseas trading hubs. However, re-routing stones through low-tariff countries offers little respite, as most diamonds are cut and polished in India and would still attract the US levy. 

“The industry’s revenues are likely to hit their lowest level since 2007,” said Rahul Guha, senior director at Crisil Ratings. “While Indian consumption has risen gradually, it cannot offset losses from the US and China.” 

 

Weaker earnings, stable balance sheets

Despite the revenue pressure, balance sheets are expected to remain broadly stable. Leverage is projected at 0.7-0.8 times, though weaker earnings could drag down interest coverage from 2.3-2.5 times last year to around two times, according to Himank Sharma, director at Crisil Ratings. 

“Declining scale of operations and pressure on profitability will likely test their credit risk profiles,” Sharma said.

Miners, meanwhile, have already reduced output in an attempt to stabilise prices, while polishers are preparing to run lean inventories and cut debt exposure.

 

Bottom line for diamond industry

The long-term outlook for India’s diamond polishing industry will depend on global economic conditions, demand recovery in major markets, and the industry’s ability to adapt to a changing trade environment.