The Indian Diamond cutting industry

India is the world leader in the manufacture of cut and refined diamonds. India dominates the diamond cutting and refining trade with 11 out of 12 diamonds being processed in India. Indian cut diamonds are known for their precision and high quality. This is the reason that Diamonds cut in India are valued very highly all over the world. This has led to India emerging as the largest diamond cutting center in the world. Here the concentration is on on the small and medium sized gems. The larger ones are handled in North America and Europe. This industry alone employs around one million people. This alone constitutes about 95% of all the people employed worldwide. The Indian Diamond cutting industry is primarily located in the small towns in and around Gujrat, Ahmedabad, Surat and Bhavnagar.
Figure 1: http://en.wikipedia.org/wiki/file:Apollo_ Synthetic_diamond.jpg

By late 1980s, due to the production in the mines of Australia, there was a change in the positioning of the cutting and polishing industry. The cutting companies started being situated close to the production areas. This created an environment conducive to develop the cutting and polishing industry in India. It was also because the cost of workers was very low in India. With a tradition of more than thousand years, which included some small activity in the cutting of diamonds, India in the last fourty years has become the biggest centre in the world for polishing diamonds. Even bigger than Israel, mostly because recent mining production are very small. The diamond cutting industry in India is still very unorganized : it consists of approximately 100 000 smaal companies employing over 2 million people. In the north of India, in the province of Gujarat, houses 80% off all the processing of diamonds produced in the country, with a concentration of 90% in diamond cutting companies in the singla city of Surat. The stones that are processed in India are of smaller size, generally smaller than 0.5 carat, resulting in the fact that automatically the companies are not well adapted to cut stones from 1 to 2 carat. That is why in 1999 the laboratory for authentification, the International Gemology Institute (IGI), was set up. It is equipped with ultramodern and complete equipment and it employs 120 experts.

Gems and Jewellery (GJ) has been used by the Indian civilisation since ages for both its aesthetic as well as investment purposes. Precious metals and stones have been an integral part of the Indian civilisation since its recorded history. India has the distinction of being the first country to introduce diamonds to the world. The country was also the first to mine, cut & polish and trade in diamonds. The GJ industry can be classified into various sub segments like diamonds, coloured stones, gold and silver jewellery, pearls, etc. However, the two major segments in India are gold and diamonds. India dominates the diamond processing trade with 11 out of 12 diamonds being cut and polished in India. India also dominates the gold and silver consumption globally with consumption of about 800 tonnes p.a. The industry holds prominent significance as it is a net exporter and provides employment to 1.3 mn people directly and indirectly. The industry is characterised by highly unorganised trade, labour intensive operations, working capital & raw material intensiveness, price volatility of gold especially and export orientation. Demand for gold and diamond jewellery is driven by festivals and wedding, increasing affluent and middle class population, increase in per capita spend on luxury items, etc. Though India plays a dominant role in the GJ industry in terms of processing and consumption, mining of gold and diamond is amongst the lowest in the world. India imports gold and rough diamonds along with other precious metals. Gold is purchased from countries like Switzerland, South Africa, Australia, UAE, etc and rough diamonds are sourced from Belgium, UK, Israel, UAE, etc. With political pressure to increase local beneficiation in African mining nations, new cutting and polishing centres like Botswana, Nambia, Angola will emerge, reducing Indias dominance in diamond processing. We expect organised sales to grow due to changing buying preference by growing young population, introduction of Hallmarking and Certifications. The key drivers for the industry growth are raising disposable income, conscious marketing efforts, rising young population with urge to spend and jewellery regarded as fashion accessory. However, with current economic crises world wide, spend on luxury goods will reduce impacting the GJ industry considerably. Also, exports have taken a hit with key consuming nations like US and Europe in recession. In this time of economic crises, with higher costs and reducing margins, we expect the large diamond processing companies to forward integrate to relatively higher margin areas like jewellery fabrication/ retail. The industry is likely to witness consolidation with small players either shutting down operations or merging with larger players The Indian Gems and Jewellery (GJ) industry is dominated by diamond processing for exports and gold and silver consumption domestically. The Indian jewellery market is worth about Rs. 700 bn (USD 16 bn). Of this, domestic demand for gold jewellery is estimated at about 80% and the balance comprises diamond jewellery and other fabricated jewellery.

Demand for gold in India has an inverse relationship with price volatility. With increased volatility in current months, the consumption has declined. However, gold is also considered a natural hedge against inflation and is considered a safer option in times of economic uncertainty which leads to gold demand in the form of retail investments and Exchange Traded funds (ETF). Prices of diamonds are dictated by demand supply gap with demand dominated in western countries, especially the US. In the current economic crisis, how will the Indian GJ industry cope up? What are the new emerging trends in the industry? What is the impact of local beneficiation in diamond processing? The report seeks to answer the above issues using reliable sources of primary and secondary data and our views on the same. This report on the GJ industry outlines the future demand growth for the industry, changing trend in the Indian retail jewellery market and future of diamond processing. The report is indispensable for any company in the GJ industry, banks/ FIs, policy makers, research & academic organizations, other international and national agencies, etc. Additionally, the monthly updates (for the period january-2009 to December- 2009) accompanying the subscription of the said report would form a potent tool for the subscribers to keep abreast of the happenings in the industry The report elucidates facts on the Indian Gems and Jewellery Industry, supplemented by the latest available data. Emphasis is laid on the following topics to accomplish the report.

Evolution and current state of the industry Product profile of various categories of gems and jewellery like diamond, gold, silver and coloured gemstones Industry characteristics elaborated with respect to raw material, labour and working capital intensiveness, unorganised sector, export orientation and branding & certification. Demand supply scenario and comment on demand drivers being continuous traditional demand, increasing affluent and middle class population and shift in buying patterns. Extensive coverage on export & import trade with latest 3 years data on product wise and country wise exports of gems and jewellery and product wise imports of gems and jewellery Cost analysis analyzing raw material cost and interest cost. A brief note on duty structure and government regulations in the industry SWOT analysis and Porters Five Force model. A brief overview of five key companies with latest 3 years data on financial and operational parameters, company action plan, their strengths and weaknesses and company outlook