Unviability of Export Driven Diamond Industry: Economic & Geopolitical Factors

Unviability of Export Driven Diamond Industry: Economic & Geopolitical Factors

Question: A combination of factors has rendered export driven diamond industry unviable. Examine the economic and geopolitical factors that have contributed to the downfall of the diamond industry.

- Numerous economic and geopolitical factors have caused the export driven diamond industry to become unviable

- The Indian diamond cutting and polishing industry has been finding it increasingly difficult to prevail on the global scene

- High prices of roughs and poor off take of finished goods by the diamond consuming market has squeezed margins

- China, the Middle East and Europe have observed poor demand for diamonds; Indian exporters are facing payment issues in China

- Raw material(rough) prices have risen and there has been no corresponding rise in diamond prices due to poor demand

- Moreover, there had to be some de-stocking by the industry

- Reports by rating agency CARE say the diamond processing players have seen margin pressures on back of increase in rough diamond prices without proportionate increase in prices of polished diamonds

- According to the Gem and Jewellery Export Promotion Council, C&P diamond exports fell by 5.5% to USD 23.16 billion

- Value of imported roughs increased to USD 16.74 billion on anticipated shortages

- Volume of imported roughs fell by 9% to 1,473.41 lakh carats

- April-May 2015 saw a 24% fall in rough diamond imports to USD 2.69 billion and export of C&P diamonds fell by 10% to USD 3.37 billion

- CARE ratings have indicated exports continue to remain weak as buyers are concerned about two issues namely growth of the international economy and impending rate increase by the US Fed

- The industry has also been plagued by delinquencies and shortage of finance as banks are wary to lend to the industry

- Traders were also considering voluntary closure or an embargo on import of roughs to reduce inventory

Facts and Stats

- India processes 8 of 10 diamonds sold internationally

- US is India’s biggest consumer of diamonds

- India is among the largest buyer of rough diamonds across the globe