Full marks to the Gems & Jewellery Export Promotion Council of India (GJEPC), the apex body of gems and jewellery trade, for organizing the first ever World Diamond Conference in India, in association with the World Diamond Mark Foundation (WDMF) and supported by the Ministry of Commerce and Industry, Government of India on December 11 and 12, 2014 at Vigyan Bhawan, New Delhi, India. The highlight of the two day congregation of global diamond leaders, was the presence of Vladimir Putin, President of the Russian Federation, and Narendra Modi, Prime Minister of India, at the inaugural function on December 11, 2014.
By hosting the World Diamond Conference in New Delhi, India effectively brought the global diamond industry under one roof to address challenges that were looming over the diamond business. Narendra Modi’s announcement of the government’s decision to establish a ‘Special Notified Zone’ (SNZ) that will help miners bring roughs on consignment basis display and book orders from local buyers, was received with great enthusiasm by the industry. Industry leaders rightfully focused deliberations on future business prospects for the industry, as well as finding solutions on core issues like rough shortage, generic marketing and the trust factor, which were long overdue.
For India, the world’s largest diamond processor, it is the beginning of good times... with better days to come in the future. The SNZ will be the best thing that has happened to the Indian diamond industry as it will now bypass traditional dealers. Besides, with the industry looking for supply of more rough diamonds directly from mining companies across the globe, the SNZ will felicitate the process, turning India into a diamond trading hub. In addition, establishing of the SNZ will give the Indian diamond industry a strong competitive advantage against other diamond trading centres of the world like Antwerp, Dubai, etc. Besides, saving time as well as foreign exchange spent on travel to these trading centres or setting up offices there, this will also ensure steady supply of rough diamonds to India. The GJEPC now proposes to conduct weekly auctioning of rough diamonds in collaboration with Bharat Diamond Bourse (BDB) at Mumbai, with the main objective of providing producers direct access to Indian market and vice versa.
The Indian diamond industry is elated with the windfall, which will ease the perpetual shortage of rough in the country; and the constant struggle to source rough diamond to feed the factories will be a thing of the past. But in addition to SNZ establishment, the ALROSA contract finalising with 12 Indian companies, took the excitement one notch higher. On the sidelines of the World Diamond Conference, Russia’s ALROSA finalized three year contracts for direct rough supply to 12 Indian diamond companies beginning 2015. Illya Raschin, Acting President of ALROSA signed the agreements with the respective heads of each of the companies in the presence of Siddharth, Joint Secretary, Dept. of Commerce, Ministry of Commerce & Industry, Government of India.
Sourcing rough directly from mines gives Indian importers the benefit of cutting costs by as much as 10 percent. Now, India has signed three long-term agreements to buy from OAO ALROSA (ALRS) in addition to nine existing deals. The 12 companies selected as clientele of ALROSA include Rosy Blue, Diamond India Ltd, Jasani, Shree Ramkrishna Exports, Hari Krishna Exports, KGK, Dimexon, Kiran Gems, Venus Jewel, Karp Impex, Sheetal Manufacturing and Asian Star. Of course, Indian diamantaires would have appreciated more direct long-term contracts with more Indian companies, given that the issue has been on the cards for quite some time. But, as someone famously said “Good things come in small measures”, the Indian industry members are extremely pleased with the direction the relationship with ALROSA is moving, hoping the future will see more ‘contracts’.
The estimated direct sales from ALROSA to Indian companies during the new contract period will be about US$ 700 million per year, and the total for the three year period will reach US$ 2.1 billion. This, apparently, is a fivefold hike in the current direct supplies of rough from ALROSA to India and is expected to provide a huge boost to the Indian manufacturers. As one of ALROSA’s Renewing client, Ghanshyambhai Dholakia, MD of Hari Krishna Exports said, “It was a great experience renewing the contract of ALROSA. It’s a significant move by Mr. Modi to invite Mr. Putin President of Russia to visit India; and this will definitely be fruitful in the future.” He added, “As a manufacturer, we need regular source of rough and we hope this will become a regular source to receive rough directly. We look forward to build long term relationship with ALROSA for direct sourcing. Contracts with ALROSA will be beneficial, especially for diamond manufacturers and the Indian diamond industry on the whole.” ALROSA is expected to start direct sales of rough diamonds to Indian firms beginning year 2015, which will give an impetus to the cutting centres in India.
India cuts and polishes more than 90% of rough diamonds in terms of carats and more than 70% in terms of value. ALROSA’s contracts, SNZ and other sops to the diamond industry come at a crucial time when diamond manufacturers are entering an era of severe competition. As the decline in rough diamond supply is expected to place additional pressure on their already razor-thin profit margins, the support by the government of India is a ‘shot in the arm’ for the industry.
Prior to the World Diamond Conference, when the Government of India confirmed that it supports the proposal of The Gem and Jewellery Export Promotion Council (GJEPC) for establishment of Special Notified Zone (SNZ) for import and trading of rough diamonds, the news, in more ways than one, foretold the picture that would emerge in the following days. The Minister of State (Independent Charge) in the Ministry of Commerce & Industry, Government of India, Nirmala Sitharaman, noted that “The Special Notified Zone is being created with view to cut out middlemen and encourage overseas diamond mining companies to open their offices in India at designated zones to sell their produce directly to Indian manufacturers. Again, this statement made it apparent that maybe the Indian industry’s hope of getting direct supply from ALROSA was not far away. “Now, India will establish a special zone in which companies can import rough diamonds on a consignment basis and re-export unsold ones,” the Prime Minister said.
One of the sponsors of the World Diamond Conference, KGK Diamonds India Pvt. Ltd., which also signed a long term contract with ALROSA, has expressed pleasure working with ALROSA in the past. “It is our pleasure that we are one of the 12 Indian companies who have signed the agreement with ALROSA. Other companies under the KGK group are already in association with ALROSA and the experience of working with them has been very fruitful so far. We wish the same for the future. The conference in itself was a historic moment in the books of Indian Gems and Jewellery industry. The direct involvement and endorsement by great world leaders like Vladimir Putin and Narendra Modi, helped build up the confidence of retailers, manufacturers, miners and top bankers involved directly or indirectly with the Indian Gems & Jewellery industry. This would result in more employment and revenues, strengthening our economy even further”, says Sanjay Kothari, Vice Chairman- KGK Group.
With ALROSA ruling the roost all through the 2-day World Diamond Conference, Mining giant Rio Tinto too reiterated its longstanding relationship with India - a 30-year partnership. Managing Director Jean-Marc Lieberherr said the company’s presence from diamond manufacturing technology, to market development initiatives with the Indian diamond industry, it makes the company best fitted to drive the sector’s growth in the country. Touching upon the permit hurdles that Rio Tinto has run into with the Bunder project, he said that the company remains bullish about the opportunities India has to offer. Understandably, the Indian diamond industry too would like the Bunder project see the light of day as it would at least ease if not totally solve the rough shortage problem in the industry.
Kiran Gems had its Managing Director, Mavji Patel and Director, Dinesh Lakhani present at the event in Delhi. Dinesh Lakhani said, “We are happy to renew the contract with ALROSA. Being a manufacturer of the largest volume, consistent and ethical sourcing is core to us and ALROSA is a great sourcing partner.”
Another diamond processor expressed somewhat similar sentiments, “As a diamond manufacturer we employ 25 000 people. We need a stable supply of rough to ensure stability of the production cycle”, Bharat Kakadia, director, Sheetal Manufacturing Company.
The Indian diamond industry is of the opinion that the collaboration between ALROSA and Indian diamond traders could make India the world’s leading diamond trading hub. It’s a win-win situation for both Russia and India. Russia will have buyers from India to lift their produce and India will have a regular source of rough for its cutting and polishing centre. With enough drive to revive the industry, India will easily become the first destination for global diamond trade in the next few years.
With fourteen out of fifteen diamonds in the world being cut and polished currently in India, ‘more’ is ‘less’ when it comes to requirement of rough diamonds. Russia’s diamond reserves are more than 1 billion carats, the largest in the world, while ALROSA accounts for more than quarter of the global diamond mining.
Analysts in India feel that it would make better business sense for the Indian industry to invest in manufacturing units in Russia - both in diamond processing as well as jewellery manufacturing. India’s export business will also see a boost if the current trend between the two countries continues. It will not be long when Russia would be the next big market for the polished diamonds as well as finished jewellery from India. "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," predicts Vipul Shah, Chairman of GJEPC.
Russia has a small local diamond manufacturing industry but impressive retail market with $16 billion annual turnover. This should be an attractive target for Indian exporters but the import duty structure on polished diamonds in Russia remains to be a hurdle. It is said that currently, custom duties are flat 20 per cent on invoice value. An importer pays 1 to 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. India expects a rectification to take place soon, more so after the Russian delegation’s discussion in India recently. 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 meagre $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. Both the countries need to take positive steps to explore the ample opportunities before them, in the Indo-Russian trade scenario.
While the Indian diamond industry on the whole is happy with the recent events, there is excitement among diamantaires from Surat at the enhanced bilateral cooperation in diamond trade between India and Russia. While most of Russia’s rough diamonds end up in India for processing, less than 20 percent come to the country directly. Diamantaires from Surat think that due to the direct connect between the two countries, bilateral trade can catapult from a paltry $611 million now to a whopping $5 billion. It is estimated that greater cooperation with Russia can completely transform the lives of half-a-million-plus diamond workers in Surat, and another half a million who live off ancillary businesses. The year 2015 is sure to bring in good cheer for the Indian diamond industry.
Aruna Gaitonde, Editor in Chief of the Indian Bureau, Rough&Polished
