The Indian diamond industry has been experiencing ‘bad weather’ in form of weak global demand of polished diamonds, credit crunch and frequent defaults. Representatives of India’s Gem & Jewellery Export Promotion Council (GJEPC), Bharat Diamond Bourse (BDB) and Mumbai Diamond Merchants’ Association (MDMA) had organized a meeting recently in Mumbai to discuss the situation and find out some measures which could provide relief to the industry from the prevailing situation.
Earlier before the meeting, it was expected that the leaders would advise the industry not to import rough at least for a month but instead the leaders for the time being have decided against it and have recommended such measures which would provide some relief to the industry. The leaders present in the meeting felt that collective efforts should to be taken to address the issues like diversification of capitals to other businesses by some of the companies; shrinkage of profitability due to low demand and stock hangover of polished inventory; cases of defaults which had affected the availability of bank finance & eroded the credibility; increased rough prices and absence of discipline in purchase of rough inventory and at the same time un-disclosed mixing of synthetic/lab grown diamonds.
Cases of the payment defaults have been on the rise with hundreds of crores of Rupees lost during past two years including Rs. 700 crores within a month of June 2015. Analyzing the reasons of the increasing cases of defaults in Indian diamond industry, Chairman of the GJEPC Mr. Vipul Shah says, “Recent profitability of the industry has suffered due to the high prices of rough diamonds and lesser demand of polished diamonds. If one add with that the increasing cost of finance of Indian banks, the rates of interest of which are not in conformity with the international rates of interest, the problem becomes more severe. In my opinion, this is the primary cause of defaults of certain companies, who cannot cope up with such business scenario with lines of credit from banks.”
Industry sources say the rough diamond prices have increased by 65% during last three years, while the polished diamond prices have either remained stagnant or reduced by 15 to 20%. On the other hand, companies which were getting 100% finance for rough diamond purchase from foreign banks like ABN and Standard Chartered a year ago, now they get only 60%. They say that the banks have classified gems and jewellery sector into the high–risk category.
Speaking about the measures the Council takes to prevent such unwarranted instances, Mr. Shah says, “The GJEPC has always taken quick actions to stop such instances with regularly coordination with the banks, the IBA and RBI to see that defaults which are not due to business to be looked at severely and adequate precautions should be taken. Additionally, we are also consulting our member manufactures/companies with the precautions to be taken to avoid the default.”
“At the business front, we are urging the banks and government to lower the interest rates in line with the international rates. We are also urging our members to maintain discipline in buying of rough diamonds when the demand of polished diamonds is slow. We have also taken steps for marketing of diamond as a category and requested the mining companies to start it in right earnest so that the demand for polished diamond picks up,” Mr. Shah adds.
Import embargo on rough was not advised fearing further job losses in the industry. One of the representatives of the GJEPC attending the meeting said, “A situation is possible where the Indian diamond industry would have to bear a setback if things don’t improve soon and profit-margins do not return to the business. We are talking about the future of millions of workers who are working in the manufacturing units.”
It was further decided in the meeting that the Indian Diamond Industry would make efforts across various stakeholders and review the situation in a month with a larger group and arrive at a decision thereafter.
Posted by Suresh Chotai