India Creates History in Global Diamond Industry

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New Delhi : The global diamond industry witnessed a historic moment when two top political leaders of Asia’s two great nations graced the recently concluded World Diamond Conference India (WDCI) in New Delhi. No industry in the world is lucky enough to have two governmental heads present together in its event.

Presence of India’s Prime Minister Mr. Narendra Modi and President of the Russian Federation Mr. Vladimir Putin at the inaugural session of the WDCI has given greater impetus and importance to the global diamond industry and especially to the Indo-Russian diamond trade. Both the veteran leaders have given top priority to enhance bilateral diamond trade between the two countries and by virtue of it India has taken a step ahead in direction of becoming diamond trading hub in near future.

India wants to buy more rough diamonds directly from mining companies as the world’s biggest polisher of the gems seeks to bypass traditional dealers. Mr. Modi called upon more major suppliers such as Russia’s OAO Alrosa to sell directly to India, which polishes 80% of the world’s diamonds, avoiding trading centers such as Antwerp and Dubai. Mr. Modi said he asked the Mr. Putin to drop duties on jewellery makers who send rough stones to India and re-import polished gems.

Mr. Narendra Modi reiterated his government’s commitment of establishing Special Notified Zone (SNZ), first in Mumbai and then in Surat that would help miners to bring roughs on consignment basis to display and book orders from local buyers. India’s Gem & Jewellery Export Promotion Council (GJEPC) plans to conduct weekly auctions of rough diamonds in collaboration with Bharat Diamond Bourse (BDB) at Mumbai. The main objective is to provide producers direct access to Indian market and vice versa.

Mr. Modi mentioned that he and the Russian president had initial discussions on the diamond industry during their meeting on the margins of the G20 summit in Australia and it took only 15 days for the Russian leader to take forward the discussion and push through the concrete decisions.

“I strongly feel that if India and Russia come together, diamond will sparkle the whole world,” Modi proclaimed in eloquent Hindi.

Mr. Modi also announced a first-ever in the history of global diamond industry Introduction of outsourcing of polishing services by India to cater to the needs of the global diamond industry.

Addressing the WDCI, President Mr. Putin reminded that Russia’s diamond reserves are more than 1 billion carats, the largest in the world, while Russia’s Alrosa accounts for more than quarter of the global diamond mining.

“Indian companies and companies with Indian capital account for about 50 per cent of Russian rough diamond sales. Considering that we need to think about closer cooperation. We discussed with Mr. Modi what policies are required to maximize the output of diamond industry,” said Mr. Putin.

Mr. Putin invited Indian diamond manufacturers to invest in manufacturing units in Russia.

During the Conference, Russia’s mining giant Alrosa finalized three year-agreements for direct rough supply to India’s 12 diamond companies beginning effective from 2015. The contracts were signed by Mr. Illya Raschin, Acting President of Alrosa with the respective heads of all of the 12 companies in the presence of Mr. Siddharth, Joint Secretary, Dept. of Commerce, Ministry of Commerce & Industry, Government of India. The 12 companies selected as cliental of Alrosa are: Rosy Blue, Diamond India Ltd, Jasani, Kiran Gems, Shree Ramkrishna Exports, Hari Krishna Exports, KGK, Dimexon, Venus Jewel, Karp Impex, Sheetal Manufacturing and Asian Star. During the new contract period, the estimated direct sales from Alrosa to Indian companies would be about US$ 700 million, and the total for the three year period would reach US$ 2.1 billion. This represents a massive fivefold hike in the current direct supplies of rough from Alrosa to India and will provide a huge boost to the Indian manufacturers.

“Fourteen out of fifteen diamonds in the world are being cut and polished in India”, Commerce and Industry Minister Nirmala Sitharaman said in her address at the conference. She mentioned that the Indian cutting and polishing industry should be praised not only for expertise and skilled labour, but for willingness to work on low margins.

The minister noted that the Indian government realizes that the diamond industry is not in the best shape as it is experiencing the weakening demand. However, government is ready to revise polices in order to boost the industry growth, she assured.

Mr. Alex Popov, Chairman of the World Diamond Mark Foundation (WDMF), said that the conference exceeded not only the expectations of the participants, but also his own. “The topic of generic marketing was the golden thread that ran through all the discussions and bound the various presentations and speeches together. This was also the first time that retail jewellers and brands featured prominently, presenting diamond industry members with valuable insights.”

“It was a very intense two-day meeting that brought the need for generic marketing and promotion of diamonds to the full attention of all participants,” Popov said. “Of course, WDMF and the World Federation of Diamond Bourses (WFDB) are very grateful to India’s Gem & Jewellery Export Promotion Council for taking the lead in organizing this exclusive event that was headlined by the conference inauguration in the presence of two of the world’s most powerful leaders, the president of Russia and Prime Minister of India,” he added.

“The diamond industry is currently facing a decline and the task of the global diamond community is to revive the demand from the consumer. The World Diamond Mark, a non-profit foundation established in 2012 by the World Federation of Diamond Bourses to promote consumer desirability and confidence in diamonds, is making determined efforts to boost the growth of the diamond industry and increase the share of diamond in the luxury market sector. India, being the center of diamond manufacturing and trade, plays a key role in the success of the World Diamond Mark initiative on the global stage,” he said.

A suggestion made by one of the producers, to create a diamond industry think-tank to discuss the ways to move forward the issue of generic diamond promotion, was gladly adopted by the WDMF and the WFDB. “This initiative will help us propel the development of the WDMF and contribute toward the inclusion of all stakeholders in the World Diamond Mark growth and acceptance throughout the industry and in the downstream market.”

Mr. Popov announced that the first think-tank meeting is scheduled for upcoming March. He also revealed that the next World Diamond Conference is slated for November 2015. “We would hope to emulate the excitement and quality of the inaugural event, and to make this an annual tradition,’ he concluded.

During two days’ deliberations of the WDCI, almost every issue of the diamond and jewellery industry was comprehensively discussed by the industry leaders and bureaucrats.

Vipul ShahMr. Vipul Shah, Chairman of the GJEPC said, “This is the first ever World Diamond Conference and it is a matter of pride for it to be held here. India is the largest manufacturing hub. We purchase roughs, annually 80 per cent by volume. Indian diamond companies are constantly upgrading their product. The human element is also important in India. We have the largest number of employees involved in the industry in comparison to the world. Special Notified Zones and SEZs are in the wish list of GJEPC and have been submitted to the government. The list has been accepted by the government in principle. I invite all, not just Indians but our diamond industry peers abroad to set up shop here.”

“Russia continues to remain an important market for us. Not only for direct sourcing of rough diamonds, India wants to increase the size of its polished diamond market in Russia. Our Prime Minister’s appeal to Putin to allow import of diamonds from India duty free is going to help the Indian diamond industry,” Mr. Shah said.

Almost 50 per cent of diamonds exported from India are sold to the US, according to GJEPC statistics. Exports to Russia are far less, totaling $8.2 million in 2011. Russia with its small local diamond manufacturing industry but impressive retail market with $16 billion annual turnover is an attractive target for Indian diamantaires. However, the import duty structure on polished diamonds in Russia remains a serious barrier.

Custom duties are flat 20 per cent on invoice value, on top of that the importer pays 1to 2 per cent of inspection levy and 18 per cent VAT, which raise the value of the imported jewellery to retailer by 42 per cent. Such duties are not reasonable at all. Nowhere in the world does one pay such duties as in Russia.

GJEPC statistics shows that in the past one decade, India’s total polished diamond export from 2000 to 2010 to Russia was around $3.67 million (Rs 15 crore). The annual export of polished diamonds in 2013-14 to Russia was a meager $8 million. On the other hand, rough diamond imports from Russia have registered a phenomenal growth after 2009. In 2009-10, India imported rough diamonds worth $250 million and that it increased to $700 million in 2013-14. By buying directly from mines, Indian importers can cut costs by as much as 10%, according to Vipul Shah.

Ernie BlomMr. Ernest Blom, President of the World Federation of Diamond Bourses (WFDB) acknowledged and thanked the GJEPC, WDM and Alrosa for sponsoring an event of this nature to plan and build the position of diamond jewellery in the luxury goods market. The importance of this can be judged by the attendance of Vladimir Putin, the Russian President and Narendra Modi, the Prime Minister of India.

Reference was made by Blom to the long association between India and diamonds, probably going back 6,000 years and its current standing in the market as the biggest cutter and polisher of diamonds by volume in the world.

He pointed out that the responsibility for developing a marketing plan and strategy for diamond jewellery has become the responsibility of the industry as they can no longer rely on mining houses to do this. The WFDB representing 30 Bourses across the globe has for the past 67 years been at the forefront of developments in the diamond industry. The WFDB has recognized the importance of marketing and the elevation of the status of diamond jewellery in the eyes of the consumer when competing for the luxury Dollar spend. Based on this assessment, the WFDB created the World Diamond Mark (WDM). The WDM has been very active in building awareness, raising funds and launching this very extensive program to assist with the marketing of diamond jewellery. Blom thanked his colleagues at the WDM for their commitment and success in the roll-out of the key development for the WFDB.

Reference was made as to how the diamond industry is dependent on Mother Earth for its product and that natural diamonds take millions of years to be made deep inside the Earth as opposed to other products in the luxury market that can be produced by factories based on demand.

The matter pertaining to diamond certificates was raised by Blom in reference to recent issues regarding grading and he stated that the WFDB will be hosting a meeting in early 2015 to facilitate discussion about grading standards and methodology for the industry. This meeting will be inclusive of industry people and key laboratories from around the world.

“We are here to plan strategies to ensure growth of our industry through future years. We need to maintain integrity to strengthen consumer confidence. The correct rating of diamonds has been becoming an issue. Tackling this issue is of paramount importance to retain the consumers’ confidence. We are here to talk about all the problems and find solutions to sustain our industry’s growth,” Mr. Blom added.

Mr. Ilya Ryaschin, Acting President, Alrosa said, “China and India continued to drive the market due to the growing purchasing power of the middle class. We will produce 163 million carats by 2019 of rough. This will be outrun by the diamond consumer demand. There is a huge need of exploration. We produce 36 million carats per year. 1 billion carats stock is preserved with us. For the next 25 years, we will be able to continue our production. Three underground mines were launched in 2014. So far, 25 per cent of production of ALROSA is done from underground mines, which will be up by 10 per cent in our opinion. We face 2 facts: depletion of the diamond deposits and the need of exploration of new mines and diamond deposits.”

Mr. Ryaschin further added, “In all, 70 per cent of diamonds are polished and cut here in India. ALROSA seeks to build stable marketing and sales systems. Currently, we sell 70 per cent to our ALROSA Alliance Clients. Other percentage is sold through spot market. We, as a diamond industry, who employs millions of people of the world should be able to find ways to function very smoothly.”

Jean-Marc LieberherrMr. Jean-Marc Lieberherr, Managing Director Rio Tinto Diamonds said, “Rio Tinto aims to tap into the increasing demand for diamond-gifting sales in India. Besides, the company’s 1,000-hectare diamond mining project with 27 million carat of reserve in Madhya Pradesh is expected to get a mining lease next year, and will likely start producing by 2020.”

He talked about the diamond culture in India and the company’s plans on the sidelines of the two-day World Diamond Conference in New Delhi. With Nazraana, a syndicated brand among Rio Tinto Diamonds, 150 Indian retailers, six jewellery manufacturers and four jewellery partners, the diamond mining company aims to cash in on the increasing demand in diamond-gifting sales. Mr. Lieberherr said a key element of Rio Tinto Diamonds’ marketing focus in India is to support growth in domestic diamond jewellery sales.

“Nazraana, a two-year old brand, will make a mark in the $3 billion to $4 billion diamond gifting market. It will also be marketed across India’s neighbouring countries such as the Gulf countries in future.”

India is the world’s largest centre for cut and polished diamonds, with Surat housing most of the country’s polishing factories. India contributes 85 per cent in terms of volume to the $80 billion global diamond market, while Russia is the world’s largest producer of diamonds.

Rio Tinto Diamonds is also developing the fashion jewellery segment with Chinese retailers. Mr. Lieberherr said the diamond business contributes about $1 billion to its turnover.

He hinted Rio Tinto’s 30-year partnership with the Indian diamond industry makes it the best fit to drive the sector’s growth in the country.

Mr. Lieberherr said the company’s presence in the local industry was a decades-long journey that covers “everything” — from diamond manufacturing technology, to market development initiatives and “the first diamond discovery in India in decades.”

His statement comes barely a week after the news of Russian President Vladimir Putin aiming to secure a long-sought deal with India that would significantly boost exports of state-owned diamond miner Alrosa.

He said the Company remains bullish about the opportunities India has to offer, even though its flagship diamond project in the country, Bunder (monkey in Hindi), has run into permit hurdles.

Environmentalists have been raising concerns over potential threats to a tiger corridor about 100 km from the deposit in the in Madhya Pradesh region. So Rio is now working on securing environment and forest clearances to get its final mining plan approved.

“Development of our Bunder diamond project in Madhya Pradesh is a natural continuation of the partnership model and would put India among the top 10 diamond producing countries in the world,” Lieberherr said.

The touted project, discovered in 2004, is expected to generate about 30,000 jobs and produce up to 3 million carats a year. Once operational, Bunder will be one of the only four diamond mines globally that are likely to be operational over the next decade.

The company also said that its Argyle Diamonds mine in Australia will be delivering increased volumes from 2015, which will have a direct impact on the Indian manufacturing sector.

Mr. Stephen Lussier, CEO of Forevermark and executive vice president of marketing for the De Beers Group of Companies, lauded the Indian diamond industry saying, “As demonstrated by conferences like this one, India is a leading diamond country and its innovation and energy underpin the success of a global industry.”

Explaining his position on marketing, Lussier iterated at the outset, “Different solutions are required for the future from those in the past.”

Lussier gave a brief insight from De Beers’ most recent Consumer Diamond Purchasing Survey in India, which looked at the purchasing behaviour of 40,000 middle-class consumers across all regions of India in tier 1-4 cities. Though they were still analysing the data, which Lussier would shortly be shared with the rest of the industry, he said the top-line results are very encouraging. “In 2002, De Beers estimated that the acquisition rate of diamond jewellery among the Indian middle class was around 2%. The results of our new study show that the acquisition rate has jumped to 9% in 2014, nearly 5 times – representing exceptionally strong growth over the past decade” Lussier informed the audience.

When looking at the variety of possible scenarios that the diamond industry may encounter in the years ahead, Lussier said, recent research by McKinsey suggests real positive growth in even the most pessimistic scenario. The McKinsey scenario deemed the most likely, sees what they call the ‘double cylinder effect’ of continued economic recovery in the US, and the ongoing escalation of demand in China and India, delivering strong and sustained growth in global consumer demand for diamonds.

But, he cautioned, the world is changing very quickly and other industries are investing and progressing.

“Retailers, Rio Tinto, De Beers are all investing in marketing,” Lussier said. “But not as much as other industries are. We must not only increase our spend but also make what we are spending much more effective. And we need to understand consumer mindsets; we need to understand what the opportunities are.”

Outlining the De Beers position, Lussier put forward the following three points:

  1. While De Beers remains the world’s leading diamond producer by value, we no longer sell the majority of the world’s diamonds and need to seek marketing solutions that, while they help to maintain the dream, also help to drive demand for the diamonds we mine. This doesn’t mean there aren’t opportunities for collective effort but it’s not our priority.
  2. The retailers need margin. Margin erosion in the retail sector is a significant risk to long term Demand for Diamonds. Retailers increasingly require a differentiated product upon which they can make a fair margin in order to fund the marketing, inventory, and retail environments necessary to compete against other luxury goods categories.
  3. Lastly, the consumer is demanding a higher degree of confidence in purchasing. Confidence around the ethical nature of the product from mining to manufacturing and certainly the naturalness and thus true value of the product.

The answer he felt is lies in branding to differentiate as well as to create enhanced value; and the other is the digital world.

“That is why De Beers has invested so heavily in Forevermark,” Lussier said. Though Lussier did not discount participation by De Beers in a collective marketing effort, when pressed on the issue, he was clear that it was not a priority for the company.

Mr. Edward Asscher, President of the World Diamond Council (WDC) said, “On an ongoing basis, the united leadership of the diamond industry is more inclined than ever before to continue formulating and implementing improved ethical business standards.”

“The mandate of the World Diamond Council is to do everything to promote, support and defend the Kimberley Process and to represent the industry in negotiations with the governments,” Mr. Asscher stated. “Today the WDC also is looking at all the challenges surrounding the KP and to assess the risks around it.”

Noting the active role that the WDC plays in the Kimberley Process, which has been successful in reducing the incidence of conflict diamonds in the pipeline, Mr. Asscher emphasized that today the WDC is also focusing on educating KP member nations and organizations “to get more knowledge and coordinate the working methods and procedures, so that exporting and all importing countries use the same methods.”

Referring to informal meeting that had taken place in New Delhi just prior to the start of the World Diamond Conference, Mr. Asscher said that the heads of the industry’s various representative bodies had reiterated their support for WDC and its mission. “In the diamond family, as in any other family, there are sometimes differences of opinion,” he stated.

But ultimately that is superseded by common cause, he continued. “The WDC is a unique organization, for it requires that the most important leaders of the diamond industry must work closely together. After some public discussions it is my pleasure to confirm today that all organizations are now aligned in the interest of the total diamond industry,” Mr. Asscher said.

“The sum of our united organizations is in this way much greater than the sum of its parts,” he added. “And that is for the good of our industry. When you get to my age, one does not think of the next quarter or the next year – one thinks of the interests of the next generation.”

Mr. Darshan Mehta, President and CEO, Reliance Brands said, “Luxury consumers are divided in four buckets: the experimentalists, the connoisseurs, the flaunters and the aesthetes. Six mantras that define marketing in India are: the store is the temple of the brand; exemplary after sales services; limited edition products; VIP events for top-end consumers; communicating lineage, craftsmanship and brand values; technology is the new differentiator. The store journey consists of six points for us: the store fascia; greetings; the engagement; product trials which is a high stress zone; and the billing. The Presidential suites of five star hotels are the best for the VIP events. The luxury industry is going through newer hoops to make a mark.”

Mr. Rajeev Kher, India’s Commerce Secretary, said that diamonds are going to play an important role in the country’s trade profile.

“The gem & jewellery sector is currently the second largest contributor to India’s exports,” said Mr. Kher. “While petroleum products account for 37% of the kitty, gems and jewellery has a 15% share.”

He exhorted the diamond industry to “graduate to the next level”, locate areas where value addition opportunities lie and work at occupying that space. “In this regard diamond studded jewellery comes to mind as does marketing – specifically branding – so that we are not just in the cut and polished segment but go all the way to retail and branding,” he suggested.

He felt that to do this, it was important to keep track of consumer preferences and trends all over the world, rather than merely follow what is coming out of other countries. It is in these areas that India needs to augment its skills and capacity.

“What India offers is a young population, both as consumers and as a skilled workforce.” This, he saw as a major advantage. If you link the growth of a sector with overall economic growth and the prosperity of the country then there is a natural connect and this drives the development of the sector,” Mr. Kher said.

He concluded by reiterating his department’s commitment to the industry. “We propose to work together with the gems and jewellery industry and all its stakeholders, both national and international to see how we can derive greater competencies,” he said.

Leading diamond industry organizations including WFDB, IDMA, CIBJO and others expressed their strong and unequivocal support for the World Diamond Council’s (WDC) mission and its leadership position in the struggle against conflict diamonds following a meeting on the eve of the inaugural World Diamond Conference in Delhi.

The statement issued after the meeting said, “In response to the various reports in the media about the WDC, we wish to reiterate that we value the role the WDC plays in the Kimberley Process (KP) and, by extension, the meaningful role of the KP in the global diamond industry and trade. We therefore call attention to the WDC’s mission statement and reconfirm and pledge our continuous full support to the WDC and its objectives.”

It also reiterated the WDC mission statement which says: “The primary objective of the WDC is to represent the diamond industry in the development and implementation of regulatory and voluntary systems to control the trade in diamonds embargoed by the United Nations or covered by the Kimberley Process Certification Scheme.”

Among the meeting’s participants were Ernest Blom, President of World Federation of Diamond Bourses; Edward Asscher, President of the World Diamond Council, WDC; Ronnie VanderLinden, Secretary General of the International Diamond Manufacturers Association (IDMA) and Gaetano Cavalieri, President of CIBJO, the World Jewellery Confederation.

During the two days’ deliberations, banks and the gems and jewellery industry together also pledged to maintain greater transparency in the business practices.

Summing up the two-day Conference organized by the GJEPC in association with India’s Ministry of Commerce and Industry and the World Diamond Mark Foundation (WDMF), Mr. Vipul Shah said, “I am glad to note that the first ever World Diamond Conference India has been well received. It is a proud moment for us as India brought the global diamond industry together at one platform, for creating the common objective for generic market. I am hopeful that the impetus provided by the Conference will help the industry aim towards better and a brighter tomorrow.”

Posted by Suresh Chotai