FE Editorial Not so glittering

The Financial Express
Posted: Jul 17, 2008 at 2113 hrs IST
Updated: Jul 17, 2008 at 2113 hrs IST

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It is often forgotten that after IT, gems & jewellery is India’s second largest export industry. The Indian diamond industry, currently worth $14 billion, constitutes a large share of these exports—India exported polished diamonds worth $10.9 billion in 2007-08, mostly to the US and Hong Kong where they are then set into jewellery. The diamond industry in India, concentrated mostly in Gujarat, works with a simple model—the rough diamonds, worth $8.8 billion in 2007-08, are imported from sources mainly in Africa through the main diamond trading exchange in Antwerp, Belgium. Indian workers are particularly skilled in polishing the rough diamonds—India polishes more than 80% of the world’s rough diamonds. Now, according to reports, the Indian diamond industry is looking to diversify into trading. There is a renewed push to functionalise the new Bharat Diamond Bourse in Mumbai, which will directly compete with Antwerp as a centre of the diamond trade. Even in Antwerp, some 40% of the trading is carried out by people of Indian origin, mostly Gujarati . It thus makes added sense to wean some of the business away from Belgium.

There are some good reasons to diversify the diamond business in India, in any case. For one, India is steadily losing its share of the polishing and processing pie—KPMG estimates that India’s share will fall from 57% today to 49% in 2015 in value terms. China, with its cheap labour and more automated technologies, is emerging as a major competitor with around 21% of the share in value terms. Also, many African countries, like Angola, Namibia and Botswana, which possess most of the diamond mines, are increasingly looking to process the rough diamonds within their borders—they will get greater value added. By 2015, they are estimated to have 9% of the processing share. The Indian diamond industry has also stagnated by focusing on smaller stones while China has moved in to grab a larger share of the more valuable big stone market. The industry in India has also been hit by labour disputes and industrial action by labourers, particularly in Surat, who are demanding better compensation for their work. There may be some justification in their demands. Under the circumstances, India should look to move up the value chain to trading and indeed to setting diamonds in jewellery. The comparative advantage of cheap labour cannot last forever.