South Asia Blog: A look into the Indian diamond industry

(This entry was first published in this blog in April 2009 and it was written on the context of that time. Unfortunately, it got deleted for technical reason and I am again giving it here for the readers.)

Whenever I think of diamonds, the first thing that comes to my mind is the iconic song “Diamonds are a girl’s best friend,” which was picturised on Marilyn Monroe. I do not know whether diamonds are a girl’s best friend or not, but they are shiny and they are expensive. The industry of diamond is not so big, yet it plays significant role in the economy of few countries in the world including India.

So what is diamond? Diamond is a stable mineral form of carbon. After graphite, diamond is the second-most stable form of carbon and hardest natural mineral. Diamond is used in jewelry and various industrial operations. Around 26000 kgs of diamond are extracted from various mines around the world whose total value is worth $9 billion. In addition, there are the synthesized diamonds that are produced in laboratories. Around 100,000 kgs of diamonds are synthesized annually. Diamond’s use as engraving tool can be traced back to early human history. However, the popularity of diamond rose in 19^th century for improved cutting and polishing techniques and increased supply.

The Indian civilization knew about diamonds at least 3000 years ago. India had the first known diamond mine in the world. In India, they were used as religious icons and treasured as gemstones. Long time ago, large amount of diamonds could be found in the alluvial deposits along the rivers Penner, Krishna and Godavari river.

There are two types of diamonds in terms of use: industrial diamonds that are used in various machineries and gemstone diamonds used in ornaments. The business of gemstone diamonds is highly concentrated. The cutting and business of gem stone diamonds are limited to few countries including India. Here are some more interesting facts about the diamond business.

Some facts:

The important diamond trading centers of the world are: Antwerp, London, New York, Tel Aviv and Amsterdam.
The International Gemological Institute is based in Antwerp.
The commercial production and distribution of diamonds are controlled by few countries but most important of them all is Antwerp. It can be referred as “Diamond Capital” of the world. Nearly 80% of all rough diamonds, 50% of all cut diamonds, and more than 50% of all rough, cut and industrial diamonds are handled by Antwerp.
The whole of USA, especially New York, controls the lion’s share of the diamond business. Nearly 80% of the world diamonds are sold through auctions in USA and New York controls the significant portion of that business.
De Beers, a company based in Johannesberg and London, controls a significant portion of the world. The De Beers and its family companies are exclusively engaged in the business of diamond exploring, mining, trading and industrial diamond manufacturing business. Founded by Cecil Rhodes in 1888, the company currently markets 40% of the world’s rough diamonds which was 90% at one time.
Earlier, diamonds were known to be found only in Southern India. In India, diamond was first discovered in 9^th century BCE. Till the mid-18^th century, India was the top known diamond producing country in the world. By the late 18^th century, the Indian mines were exhausted. Then Brazil took over India.

Diamond in India:

Use of diamond as a decorative piece can be found in the early human history and some of the earliest references belong to India. One of the earliest references of the Indian diamonds can be found in “Arthashastra” written by Kautilya. He mentioned of diamond trade in India. Many Buddhist scripts dating back to 4^th century talk about the diamond as a precious stone. Another 3^rd Century text also gives descriptions of the diamond and its hardness, durability and ability to scratch metals. Diamonds were traded to East and West India and they were known to different cultures. Till 18th century AD, India remained the leading diamond producing country. Interestingly, diamond even reached the ancient city of Rome from India.

However, it is the diamond mine of Golkonda that became a legend around the world. Golconda, now a ruined city of south-central India, was the capital of the ancient kingdom of Golkonda. It served as the diamond center in earlier days. The diamonds of the Golkonda were the finest white diamonds known for its white color, clarity and transparency. Some of the world famous diamonds that are extracted from Golkonda are: Darya-e Nur, Nur-Ul-Ain diamond, the koh-i-noor, the hope diamond and the regent diamond.

Today, India is one of the major diamond cutting centers of the world along with China and Thailand. The diamond cutting center in Surat and Gujarat mainly handles small diamonds. Due to cheap labor, the smaller diamonds are cut and polished in India. The big sized diamonds are cut and polished in Europe and North America.

Rise of Surat diamond cutter and polisher:

The Indian city of Surat is situated 250 km north of Mumbai. This city is one of the major diamond cutting and polishing centers of the world. According to local lore, in 1901, a Surat entrepreneur brought a boatload of diamond cutters from East Africa and established the diamond cutting and polishing industry. The cutting business started to gather momentum in the 1970s when low quality diamonds are cut and polished. Bombay is the diamond trading center but due to problematic trade union politics, the polishers moved to Surat where the wage is lower ($2500-$3500 per year; the article from which I collected these information was published in 2004). The Surat diamond industry created controversy on the child labor issue but now that amount is very negligible. The money earned by the cutters is pretty decent. First, the cutter learns the craft and after gathering enough experience, he can earn $5000-$7000 per year. The diamond traders of Surat consist of Palanpuri Jains who hail from Palanpur in Gujarat. They are a closely knit religious community. The interesting thing about these Palanpuri Jain dealers is that they run this million dollar business based on trust. The transactions between them have no written documents. It is done orally and there has been no problem. After finding success in cutting and polishing low quality diamonds, Surat diamond cutters are now looking forward to cutting costlier stones. Many of the diamond traders have their offices in Tel Aviv and New York and from these places they bring skilled cutters to train the local diamond workers. In 2002, the diamond business of Gujarat dealt a big blow when the communal riot took place in Gujarat. The rise of India has not been taken positively by many western businessmen. Many believed that due to this cheap labor the western markets will be flooded with cheap diamonds that would bring down the diamond price in future.