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Surat’s diamond trade | Losing its sparkle

For a people who bring a shine to others’ lives, their own are filled with darkness. The diamond polishers of Gujarat, numbering an estimated 800,000, are finding themselves out of a livelihood that has been handed down to them over generations and which is the only vocation that they have ever known. According to industry insiders, some 15,000 people have lost their jobs in recent months. Unable to cope with the uncertainty, many of them are taking their own lives. Among them was 55-year-old Vinu Moradiya from Surat, who had lost his job this year, making it difficult for him to support his family of six. Driven by despair, he, his wife and their two younger children entered a pact and died by suicide in early June, leaving behind 25-year-old Rushita and her 22-year-old brother Parth. Heartbroken, Rushita, too, tried to take her own life three days later, but, thankfully, survived.

India may have exhausted its diamond mines long ago, but it has emerged as a world leader in the supply of cut and polished diamonds, thanks mostly to the business prowess of the diamantaires of Gujarat. Having imported roughs worth over Rs 1.4 lakh crore in FY23, the country’s exports of finished diamonds touched nearly Rs 2 lakh crore during the fiscal, or about 20 per cent of the world’s total. However, hit first by the Covid-19 pandemic and then the Ukraine-Russia war that curtailed the supply of rough diamonds to India, besides the cheaper lab-grown diamonds from China that have flooded the global markets, the business has been seeing a steady downturn. In the first quarter of this financial year (FY24), exports stood at about Rs 37,000 crore, a steep 24 per cent year-over-year (YoY) decline from Rs 48,350 crore in Q1FY23. The changed market dynamics have had the worst impact on those at the bottom of the pyramid—the diamond polishers and other small traders.

Surat, which alone employs 90 per cent of the state’s diamond cutters and polishers in some 4,000 firms (with another 4,000 straddling Ahmedabad, Borsad and the small towns and villages of the Bhavnagar and Amreli districts in Saurashtra), has recorded at least 22 suicides since May this year—attributed to job loss and financial distress stemming from the upheaval in the industry. Besides Moradiya and his three family members, 25-year-old Jenish Gujarati, also a diamond polisher, is part of the unfortunate statistic. On June 7, he jumped into the Tapi river to escape the burden of joblessness and poverty.

Others, like 40-year-old Bharat Kamaniya, meanwhile, are trying to cope. Hailing from Mahuva in Bhavnagar, Kamaniya was forced to migrate to Surat with his farm labourer parents in 1994 because of the lack of water for irrigation in parched Saurashtra. Starting at the young age of 15, Kamaniya has since worked with multiple medium-sized diamond polishing firms. But in May, he was laid off by the firm where he had been for the past two years. Now, he has been taking up odd jobs that earn him Rs 300-400 per day—less than half the Rs 25,000 monthly salary he used to draw. However, unlike his peers, Kamaniya does not want to return to Mahuva. “We are not landowners. I will end up working as a farm labourer or be forced to take up a low-paying job at a small diamond polishing unit there. My two children are studying here in good schools, thanks to the Right to Education quota. I want them to become smart, city-bred kids,” he says, clinging on to some optimism even as anxiety is writ large on his face.

Sitting in a tiny air-conditioned office in Surat’s Varachha Road area, Bhavesh Tank, vice-president of the 30,000-strong Gujarat Diamond Workers’ Union, claims that he receives at least 10 representations in a day from unemployed diamond polishers seeking help in finding a new job or settling severance pay and gratuity issues with their former employers. “After the Covid-induced lockdown,” he says, “the layoffs started gradually in the form of salary deductions for fewer work days or extended unpaid breaks around festivals. But, earlier this year, people were summarily fired. This is the first time since the 2008 global recession that polishers have been laid off in such large numbers.” He also terms the estimate of 15,000 job cuts as a “conservative figure”.

So, what exactly is ailing India’s diamond industry? The first signs of a crisis emerged when the international market of uber-luxury products like diamonds did not see any bounceback after the pandemic. Three years later, while the US and European economies continue to totter, an extended lockdown in China has further shrunk the market for Indian exports—35 per cent of the diamonds being cut and polished in India find their way to China, with Hong Kong accounting for a major share.

Additionally, there are unfavourable factors on the supply side. After Russia, Botswana has the largest diamond reserves. At the turn of this century, the British corporation De Beers—which is the world’s biggest miner and has a deal with Botswana—had a near-monopoly over the global supply of roughs with an almost 80 per cent share. In recent decades, however, Russia’s Alrosa has emerged as the market leader, with a 27.8 per cent share in 2021 compared to De Beers’ 27.5 per cent. Given India’s natural proximity to Russia, Surat’s diamantaires were only too happy to offset their dependence on De Beers with Alrosa.

Then came the Russian invasion of Ukraine in February 2022. As the West imposed sanctions on importing big diamonds from Alrosa, Surat continued to deal in lower value small diamonds. But in September this year, after a report by Ukraine’s National Agency on Corruption Prevention listed Surat’s diamantaires as ‘international war sponsors’ for continuing to do business with Alrosa, the G7 countries decided to verify the source and journey of each diamond they imported. This also prompted India’s Gems and Jewellery Export Promotion Council (GJEPC) to issue a statement, claiming that all business with Alrosa has been suspended.

With Alrosa out of the picture, Surat’s dependence on De Beers has increased. And here lies the catch. In July 2023, De Beers renewed its five-decade-old association with Botswana, which about 15 years ago made it mandatory for diamond companies to set up processing units within the country to access its locally-mined roughs. This stipulation has been strictly implemented of late, and Shree Ramkrishna Exports Pvt Ltd, one of the biggest diamond crafting companies in India, is among the firms that have complied. “We shifted 20 polishers from Surat to Botswana and hired 20 locals,” says Govind Dholakia, its founder and chairman.

“The big companies are exporting the entire industry to Africa,” laments Tank. “Our polishers are lured there to train the Africans and end up being exploited. Some 25 companies from Surat have set up shop there.” Paul Rowley, executive vice-president at De Beers, confirms the figure when he says the corporation is “supporting 29 factories in Botswana and a majority of them are from India”. “The diamond consumer market,” he adds, “is only going to expand in the years to come; so we don’t see that as a problemâ€æ. Seventy per cent of our roughs come to India and 90 per cent polished diamonds go through India. That is not going to change.”

On the ground, though, the change is visible. On the one hand, roughs have become pricier for Surat’s diamantaires, and on the other, there is a sudden glut of polished diamonds in the market owing to fewer buyers. As a result, the price of finished mined diamonds has plummeted. To arrest this slide, the supply of polished diamonds has had to be ‘regulated’—and hence the lay­offs, or, as the industry leaders put it, reduction of work hours. “No one has been fired,” says Vipul Shah, chairman of the GJEPC. “Only work hours have been reduced to regulate the supply of real (mined) diamonds in the market.” Another office-bearer concedes that had they not taken such measures to stop the falling prices, there would have been “50,000 job cuts instead of 15,000”.

Dholakia, meanwhile, denies any connection between the recent suicides and economic distress. “The loss of business in real (mined) diamonds is being offset by lab-grown diamonds (LGDs),” he insists. “There are no mass layoffs.” Earlier dismissed as ‘fake’, LGDs have caught the fancy of young first-time buyers lately, thanks to their lower prices and ‘ethical’ manufacturing. Produced by replicating the natural process of diamond formation in a controlled laboratory environment, these synthetic diamonds have the same chemical, physical and optical properties as their natural counterparts, and have flooded the global markets in the past couple of years.

But are LGDs really offsetting the loss of business, as Dholakia claims? Or are they part of the problem? The glut is mainly being pushed by China, which produces over half the gem-quality LGDs. India is a distant second, with about a sixth of the share. In terms of exports, the GJEPC data reveals, polished LGDs saw a nearly 30 per cent YoY growth in FY23, but there has been a reversal in the very first quarter of this fiscal. Exports stood at about Rs 2,800 crore in April-June 2023, a 24 per cent YoY decline from Rs 3,700 crore in April-June 2022. Reason: the demand for LGDs has also stagnated amid the global economic slowdown, though their prices, too, have taken a hit.

A 1 carat generic polished LGD, for instance, that cost about $5,500 (Rs 4.6 lakh) in 2016, was available for around $1,500 (Rs 1.2 lakh) at the beginning of this year, a 75 per cent drop, according to a January 2023 report by global diamond trade analyst Paul Zimnisky. In the same period, the price of an equivalent natural stone had dipped by about 20 per cent, from $6,500 (Rs 5.4 lakh) to $5,200 (Rs 4.3 lakh), the report stated. The prices have only slid further since then.

The number of LGD growers in India is not more than 50 right now, and they have their own in-house polishing facilities—the LGD roughs need to be cut and polished just like mined diamonds. Additionally, as per industry estimates, over 1,000 small- and medium-sized polishing units have taken to processing LGDs exclusively, with another 2,000 or so polishing both types of diamonds. According to the Government of India’s official estimates, the global LGD market will grow from $1 billion (Rs 8,327 crore) back in 2020 to $15 billion (Rs 1.25 lakh crore) by 2035. It was perhaps sensing this potential that the Union government in its latest budget abolished the 5 per cent customs duty on the imports of diamond seeds (the wafer-thin diamond segment used to grow LGDs), and sanctioned a grant of Rs 243 crore to the Indian Institute of Technology (IIT), Madras, to conduct research on producing indigenous “machinery, seeds and recipe” for LGDs.

Though there are a few who feel that the LGD industry needs to be regulated for the mined diamond industry to survive, leading diamond exporters and polishers are confident that LGDs won’t cannibalise the latter, reasoning that they cater to the lower end of the market. “The global demand for diamonds is increasing by 2-3 per cent annually,” says Shah. “As soon as the Chinese market opens up, the glut is going to reverse.” As the availability of mined diamond reduces, he adds, their prices will rise, as will the prices of LGDs. Currently, the annual output of LGD roughs is only a quarter of the mined diamonds. Hope, therefore, Shah insists, is around the corner.

True, Surat’s diamantaires have wea­thered many a storm before, but the current crisis seems more fundamental than cyclical. Rushita and Parth’s escape from their family’s chilling suicide pact serves as a grim parable of the crossroads Surat’s diamond polishers find themselves at today.

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