It's not yet clear if China can lead the world out of recession, but the Asian giant is certainly helping Indian diamond traders out of the woods, The Economic Times says. A number of Indian firms are busy setting up diamond processing units and retail outlets across China, as they bet on Asian markets to more than make up for the sharp drop in demand from what were traditionally the largest consumers — the U.S., Europe and Japan.
"Indian and nonresident Indian diamond businessmen are setting up retail shops in Shanghai, Beijing and urban areas of southern China," said Pravin Sankar Pandya, chairman of Diamond India Ltd., an amalgamation of 58 Indian diamond merchants. According to him, the demand for polished diamonds from China and other East Asian markets such as Taiwan, Korea, Singapore and Hong Kong will be on par with that from the U.S. in another five years.
The U.S. is the world's largest diamond market. However, it saw a decline of almost 26 percent in imports of polished diamonds to $966.7 million in December 2008. On a year-on-year basis, there was a 4.8 percent increase in imports of polished diamonds compared with 2007, but there was a clear weakening after September, when the recession started. Israel is the leading exporter of polished diamonds to the U.S., followed by India. India exported polished diamonds worth $4.66 billion during the period from April to June 2009, almost 5 percent lower than the year-ago figure, according to data published by Gem & Jewellery Export Promotion Council (GJEPC), the apex body of the country's diamond industry.
To sell diamonds in China, a company must set up processing units in that country, points out Sumit Shah, managing director of Renaissance Jewellery. Nobody is complaining, though. Like India, the country offers cheap labor. And unlike India, it has modern processing equipment.
Those who have set up shop there include Shrenuj & Co, Gitanjali Group and Sheetal Group. While Shrenuj & Co and Gitanjali Group have exclusive retail stores, Sheetal Group follows a distribution model to sell its diamonds.
"Chinese authorities are giving lots of incentives in terms of softer tax, duties and infrastructure to set up processing units in China, which could be a matter of concern for Indian manufacturers in the long run," said Pandya. Thousands of diamond polishers in India lost their jobs last year as the sudden fall in demand due to the global slowdown forced manufacturers across the world to slash production. De Beers, the world's largest diamond company, cut production by almost 90 percent in the first phase of the recession.
Things are getting better, though. "The sector is reviving, and new orders have started coming from abroad for the Christmas and New Year season," said Vasant Mehta, chairman of GJEPC.
But now there is a severe manpower shortage. The sacked workers who were forced to shift to other sectors like farming, textiles and embroidery are refusing to come back on account of job uncertainty and volatile markets, said Mehta. Surat alone is facing a shortage of around 100,000 skilled workers.
Merchants say India should follow China in offering incentives to help the industry come out of the slump. "China is directly sourcing raw material [rough diamonds] from Angola and other countries. India, too, should set up such a mechanism for the domestic diamond processors," said Navin Mehta, former president of Mumbai Diamond Merchants Association. "Also, the Chinese government has designed loan packages at softer rates for the diamond industry, which boosted the sector during the slowdown," he added.
Despite all this, it is unlikely that China can challenge India's dominance in the trade, says Mehul Choksi, chairman of Gitanjali Group, India's largest jewelry maker. "Indian workers can handle more complicated products than their Chinese peers. Chinese workers need a high-quality rough, whereas Indians can do wonders even [with] substandard rough," he said.
Meanwhile, many diamond jewelry exporters in the Santacruz Electronic Export Processing Zone (SEEPZ), a multiproduct special economic zone in Mumbai, have started selling diamond-studded silver jewelry to the international market. The concept, triggered by skyrocketing gold prices, has become popular in the U.K. and other European countries, as silver appears similar to white gold. "Such jewelry is cheaper than gold, yet the customer gets the value of the diamonds," says Rajeev Pandya, president of SEEPZ.
The global slump in demand has forced one-fourth of the 160 diamond jewelry manufacturers in the zone to close shop. The zone has now requested that the government allow the exporters to sell their goods domestically with minimal duty for at least a year, so that manufacturers can retain their workers.
