There is a faint sparkle in sight for the diamond industry in Surat, in the midst of all that rubble the pandemic made.
The global rough diamond production is expected to make a small recovery by 1.4 percent to reach 112.99 million carats (Mct) in 2021, after plunging 19.4 percent to 111.4 Mct in 2020 according to Global Data.
More the roughs, more the business for polishers, and Surat polishes nine out of ten roughs in the world. The western city has 6,000 polishing units, which employ approximately seven lakh and make a turnover of 1.45 lakh crore, says Dinesh Navadiya, regional chairman of the Gems and Jewellery Export Promotion Council (GJEPC).
When the pandemic pulsed through the country, the diamond industry’s workers left in droves. The industry, which has always run on its manual labour, was left crippled. It employs around 18 lakh across the state, since it has fanned out beyond the south Gujarat city to towns of Saurashtra region from where it draws the bulk of its manpower as well as managerial prowess.
The industry, which largely centres around importing roughs and exporting polished stones, also had to live through a fall in demand. The purchasing power of the consuming markets the US, China, Europe, Japan, Hongkong and Canada was witnessing convulsions.
According to Navadiya, the imports of roughs, laboratory-grown roughs and coloured gemstone roughs fell by almost Rs 20,000 crore in April to December 2020, compared to the same period the previous year. It fell to Rs 53,400 crore from Rs 74,660 crore, year on year. On the other hand, exports of polished gems fell from Rs 1.07 lakh crore to Rs 83,600 crore during the same period.
Though polishing activity began limping back around July last year, the inventory had already piled up. The plucky industry responded by inventing ways to tide over this period until demand began picking up around Diwali last year.
To get through the slump, traders placed greater focus on streamlining collection and reducing inventory levels. To ease the stockpile and stabilise diamond prices, the GJEPC and other trade bodies suggested curtailing rough imports voluntarily by the country’s diamond companies. More than 2,000 firms in the country complied.
These firms not only cancelled imports but also convinced global miners ALROSA and De Beers of the urgency to defer supply and thus avert panic sales in view of the nosediving demand.
Now things are on an upswing. Diamond exports grew 26.98 percent to Rs 91,489.2 crore in April to September 2021, from Rs 72,047.99 crore in the pre-pandemic period of April to September 2019, according to Diamond World. The exports are expected to grow 20 percent and cross the $20-billion mark this fiscal, according to CRISIL.
Navadiya is happy but adds, “we would like to do better”. For that, the Budget 2022-23 needs to step up and with tax cuts.
Making it less ‘taxing’
For one, the gems and jewellery industry wants an exemption from the equalisation levy of 2 percent, which is imposed on non-resident e-commerce operators. The operators have to pay this levy on what they earn from selling to Indian residents or non-resident companies that have a permanent establishment in India.
If it is charged to non-resident, e-commerce operators, why is the diamond industry concerned? Well, because they procure their rough diamonds through online auctions. Ever since the levy came into effect, which was in April 2020, Indian businesses have been coaxed by global miners to amend their contract terms and India-based businesses have been barred from certain spot auctions.
The levy has placed the Indian industry at a disadvantage. The GJEPC says that, since other countries importing diamond roughs do not have such a levy, India is bound to suffer on competitiveness.
Besides this, the export promotion council also hopes that the coming Budget will reduce the import duty on cut and polished diamonds, from 7.5 percent to 2 percent.
Winning over diamantaires
Usually, diamonds are processed and then sold on to retailers, after going through many intermediaries, each taking a cut. To reduce costs, retailers have started directly sourcing their diamonds from mining companies and outsourcing the processing of the stones to establishments in China, Vietnam and Thailand.
The retailers rarely outsource this work called job work to India. This is because the other countries have a job work policy and we don’t.
Diamond traders in Surat want the government to set this right, by framing and implementing a job-work policy and quickly. They believe it will boost exports and raise earnings considerably.
The policy is also important because consumers are increasingly conscious about the sourcing of their diamonds, with discussions around conflict diamonds and concerns about synthetic stones. With the job-work model, retailers will be able to trace the stone to the mouth of the mine.
Surat’s traders say that they have a huge advantage of cheap labour over the competing countries—labour in India is 20 percent cheaper than the other countries. If only, the job work policy was in place.
While cheap labour is seen as an advantage by the industry, it is seen as lamentable by the labourers. Diamond Workers Union vice-president Bhavesh Tank says that workers were earning Rs 17,000 to Rs 18,000 in 2008, when the Great Recession hit us. More than a decade later, the earning has gone up to only Rs 20,000. “Are these wages fair,” he asks.
The workers should be eligible for other benefits like health insurance and a provident fund account, but they remain elusive.
Will the industry consider a fairer wage scale, if they are given a fairer tax regime in the coming Budget? We’ll have to wait and see.