World’s diamond polishing hub loses its shine as demand plummets

The world’s diamond polishing hub, Surat, is staring at a potential crisis as demand is lowest since 2008 and around 100,000 people have lost work since December 2018, according to Surat Diamond Association.

Several industry leaders and a senior government functionary said the current slowdown began in November 2018 when demand for diamond jewellery went down, has gone from bad to worse on account of global factors, the high price of rough diamonds, and a liquidity crunch on account of banks not lending for a prolonged period.

The Surat diamond industry accounts for 80% of the world’s polished stones with an annual turnover of about Rs 1 lakh crore and employees around 700,000 people, according to the association and Gujarat Diamond Workers Union. “Ten years back, if the polished diamonds prices were down by 25%, then that of rough stones was down by 50%. So the availability of raw material at cheaper rates allowed Surat traders to make a comeback in some time,” says Savji Dholakia, promoter of one of Surat’s biggest diamond manufacturing and exporting units, Hari Krishna Exports.

“For the first time in the over five-decade history of this industry, the prices of rough diamonds have remained inflated for almost a year. My sense is that if there is no correction in the prices soon, the Surat diamond industry may have to go through its toughest patch in which factories having strong finances will survive,” Dholakia added.

 

Dinesh Navadia, chairman of the Gems and Jewellery Export Promotion Council (GJEPC) said the United States-China trade war, and devaluation of Yuan has further fuelled the crisis in recent weeks. “China exports over 42% diamonds polished by Surat, and it further exports jewellery to US. In turn, the US accounts for 40% Chinese diamond jewellery. But prevailing trade war between two superpowers has disturbed this equation, leading to sluggish demand,’’ he said.

According to the GJEPC’s April-July report, the rough diamond import compared to last year in the same period was down 28%. “From ~42,247 crore in April-July 2018, import of rough diamond is down to ~31,266 crore this year. Similarly, export of polished diamond has declined by 17% year-on-year for the April-July period,” the report said.

Nitin Patel, deputy chief minister of Gujarat, admitted that the industry was going through a rough patch and the government was trying to provide all possible help. “We have several round of talks with the industry and are providing whatever assistance we can,” he said. A Gujarat government official privy with the discussions said that diamond traders want exemption from import duty on gold and capital gains tax in addition to easy mode of finance to tide over the current. “Most of the issues are related to Central government,” he said.

 

The diamond traders say they are also suffering as banks have cut down on lending in the current financial year because of rising non-performing assets (NPAs). While the big factories have managed to stay afloat by decreasing their production well below the capacity, the smaller players have been hit hard, Navadia said.

“Nearly 30 % of the 4,000-odd small and medium factories operating in Surat have gradually downed the shutters after the Diwali vacation last year,” Bhavesh Tank, vice-president of the Gujarat Diamond Workers’ Union. Workers, a majority of whom are from parched rural areas of Saurashtra, have been finding it difficult to sustain their livelihoods. “Joblessness so far has affected average performer. The big firms have been trying to retain only highly skilled workers,’’ said Babu Gujarati, president of the Surat Diamond Association (SDA).

Govind Adhiya, a 30-year-old diamond polisher, is ready to pack his bags and go back to his hometown of Rajula in Saurashtra. The resident of Varachha, a neighbourhood of small lanes and cramped bylanes for polishers, has been without work for nearly two months and his future doesn’t look any brighter.

 

“In 2008, during the time of global recession, I had just finished my training in diamond polishing and found myself jobless. I had to go back to my native home. This time it is a double whammy as now I also have a family to support,” said Adhiya.

He was among 250 others employees of small diamond polishing factories, who were first asked to go home on summer vacation and were never called back to work. “Unexpectedly, they [factory owners] announced summer vacation. And since I have not heard from by employer’’, said Rakesh Patel, another worker at the diamond polishing unit in Surat.

Jignesh Chotai and several others who worked in two-shifts are now doing only one shift. “In one shift also, there is not too much of work. I do not know how I would pay school fees of my two kids if things don’t improve,’’ Chotai said.

 

“About one lakh [100,000 of total 700,000 workers] have been rendered jobless since last Diwali,’’ Tank said. “Most of them [who have lost jobs] used to take up polishing work from small factories on contract basis. Most of these factories have also closed down.” To prevent a repeat of the 2008 meltdown, Navadia said this time the big firms are trying to distribute work among workers and are trying to minimise layoffs. “Firms have also lowered the salaries to minimise job losses,” he said.