Tuesday, June 16, 2009

Surat diamond industry has been badly hit by economic recession

(This entry was originally published in April 2009 and it is based on the context of that time. Unfortunately, due to technical reasons, it got deleted and against it is posted now here for the readers.)

  • In Antwerp, the diamond capital of the world, there are 300 Indian families, who hailed from Palanpur, are engaged in diamond trading.
  • More than 70% of the world diamonds are cut and polished in Surat India. It is a $17 billion industry and cuts and polishes around $11 billion worth of diamonds every year. Eight out of ten diamonds in the world are processed in India. About 90% of these diamonds are exported to Europe and North America while the rest are purchased by Indian jewellery retailers.
  • More than 700,000 people earn their livelihood from the diamond industry of Surat while 2.5 million are indirectly related to this industry. Although Indian exports only 4% of the global diamond, it represents “almost 25% value addition to imported rough diamonds.” In 2006-07, India imported $8.8 billion rough diamonds and exported $10.9 billion polished gems.
  • Currently, there are around 6500 diamond processing units in Surat (another article says 5000 units). Almost 90% of the workers in the Surat diamond industry are migrant workers majority of which hails from Surat, while others come from the greater state of Gujarat including Bhavnagar, Amreli, Rajkot, Banaskantha and Ahmedabad districts.
  • I already talked about the controversial child labor in the Indian diamond industry. I could not find any specific information about child labor in the diamond industry. Boys sometimes as young as ten years old work in the diamond cutting factory. Their sharp eye sight and nimble fingers make them skilled cutters and they are paid well. However, as they grow up they start to lose their sharp eyesight. Currently, the number children working in the diamond cutting industry is very little and it is not possible to get the actual information because there are many families where all the members are engaged in this profession.

The impact of global economic melt down:

  • Diamond market started to show signs of crisis in October 2008. The Christmas shopping season was about to begin. For many years, the holiday season is considered to be the most profitable for diamond traders. According to Chetan Choksi, CEO, Diminco NV, prior to the season, diamond traders stocked large amount of diamonds; the biggest till date. America is considered to be the largest diamond market in the world. It consumes half of the world’s polished diamonds. Due to economic crisis, people lost their jobs and sales of diamond observed a steep 20% decline in US. A large shipment of diamond returned from USA. Many of the top diamond companies in Antwerp went bankrupt.
  • This also severely affected the diamond cutting and polishing industry in Surat.In February 2009, Indian gems and jewellery export went down 35% to $1222 million compared to the export figure of $1,867 million in February 2008.
  • Exports of cut and polished diamonds dropped 35% at $873 million against $1340 million in February 2008.
  • According to the statistics given by Gems and Jewellery Export Promotion Council (GJEPC), export and import of cut and polished diamonds in February declined 44% in terms of Rupees due to lower manufacturing.
  • In February 2009, export of cut and polished diamonds was at Rs. 42.25 billion against Rs. 52.47 billion in February 2008.
  • In February 2009, import of cut and polished diamonds was at Rs. 25.22 billion against Rs.22.24 billion in February 2008.
  • Overall, export of cut and polished diamonds went up 6% to $11,876 million against $12,687 million in the same period 2008.
  • Between April and February, gems and jewellery export came down by 5% at $17791 million against $18,654 million in the same period last year.
  • Between April and February, export of cut and polished diamonds went up 6% at at $11,876 million compared to $12,687 million in the same period in 2008.
  • Between April and February of the current year, export of colored gemstones observed a marginal increase of $248 million against $246 million in 2008.
  • In the first eleven months of financial year 2008-09, imports of rough diamonds went down 10% to $7249 million against $9075 million in the same period in 2008.
  • Due to the economic meltdown, more than 30% of the diamond processing factories were shut down in December and production came down by more than 50%. Due to canceling orders and lack of new orders, in December 2008, Gems and Jewellery Export Promotion Council (GJEPC) asked its members to stop importing rough diamonds till December 25. (In another article, it is said that 4300 diamond processing units were shut down in last nine months till March 19, 2009.)
  • C.P. Vanani, Chairman, Surat Diamond Association, said that half of diamond processing units in Surat is shut down while the rest are operating below capacity. The diamond traders did not receive any orders since last Christmas. The current amount of diamond processing is one third of what it was in 2008. Due to poor demand, many diamond traders are facing inventory build up and suffered serious losses as prices of small diamond stones went down nearly 30% since they bought them. Param Patel is the owner of Evershine Diamonds, a diamond export firm. The firm had six diamond processing units employing 4000 workers when business was good. Now, he is forced to shut down four of his six diamond processing units and asked 750 laborers and many craftsmen to leave the job.
  • On December 26, 2008, Narendra Modi, Chief Minister of Gujarat, promised to secure the jobs of diamond workers. Still, it did not make any difference. Many of the diamond processing units remained shut. Earlier, Mr. Modi denied to give any bailout packages to the diamond traders. In an international gems and jewellery conference held in Gujarat in December 2008, Mr. Modi seriously criticized the traders and ordered them to work in the best interest of the workers.

Influence on the election:

The diamond workers have no jobs and no money and there is no serious effort from the government’s side. This has made them very upsent. The Gujarat Vikas Samiti and Diamond Workers Union called for a boycott of the elections. Interestingly, on February 14, 2009, Rahul Gandhi went to Surat for electoral campaign. In his speech, he said that the Indian Congress was the party of common man. Rahul Gandhi harshly criticized the big business policies of the Gujarat government. He also criticized the government’s giving facility to set up the Tata Nano factory. Post Rahul Gandhi’s speech, Gujarat government announced a “relief package” for jobless diamond industry workers on March 1, 2009. Under the package, government allowed Rs.2500 stipend and farm loan with low interest for diamond industry workers who has turned to farming. Unfortunately, the package was not well received. President of the Gujarat Diamond Foundation, the umbrella foundation heading 42 other diamond workers association, said that it was too little too late. The government did not take necessary steps earlier.

No job for workers:

  • It is the poor diamond cutters and polishers that are worst affected by the recession.Forty five year old diamond cutter Ramveer Dharan told AFP in a telephone conversation that since the age of fourteen, he had been engaged in the profession of diamond cutting. His father showed him how to hold a diamond and cut it from all sides. Now, at the age of forty five, with no job in hand, Ramveer cleans the car of a diamond merchant.
  • Due to economic melt down, about 500,000 jobs are lost in Surat. The diamond cutters and polishers do not get any fixed salary from their employers. Now, at the time of economic recession, they are rapidly losing jobs. According to Rohit Mehta, member, Surat Diamond Association (SDA), another 50,000 skilled diamond cutters are going to be laid off if they do not find any new markets to sell their diamonds. The Surat diamond industry employs 400,000 to 600,000 diamond cutters and polishers and many of them are now jobless. According to SDA chairman, currently there are only 200,000 workers that are staying in Surat while the others returned to their villages where they are engaged in agriculture or other works.
  • Already 100,000 members of SDA requested to the government for assistance. Diamond exporters are hoping that after the national election, the government will consider their request. Political leaders are regularly meeting with diamond traders but no one made any serious promises regarding money and employment.

Diamond traders are losing their credit ratings:

The Middle East is a big market for Indian diamond producers and they are also facing a tough time over there. Recently, Credit Ratings Information Services Ltd (Crisil), the largest credit rating agency in India, downgraded the current credit ratings of some of the top Indian diamond companies that are also operating in the Middle East. As a result, banks and investors in UAE are constantly keeping the UAE branch of these companies under watch. The companies are under tremendous pressure to clear their inventories. Further downgrading of these companies would stop them from getting any financial assistance from banks and investors. Nine major leading Indian diamond companies’ credit ratings have been downgraded by Crisil. These includes: Rosy Blue Private, the number one diamond exporter to the Middle East, A Jhaveri, Fine Jewellery Manufacturing, Kama Schachter Jewellery, M Suresh Company, Mohit Diamonds, Rosy Blue, S Narendra and Shreeji Jewellery. Crisil also reaffirmed the bank credit ratings of fourteen Indian diamond and jewellery manufacturers which includes the Su-Raj Diamond and Jewellery India, a subsidiary of UAE based Indian business conglomerate Joy Alukkas Group. Crisil opined that any major capital expansion plans by the group might have an adverse affect on the firm’s credit outlook. The current economic slowdown and the fall in demand in diamonds and jewelleries are major reasons behind this downgrading.

There is still hope:

Within few months after October 2008, demand for rough diamonds dropped by 70-80 percent. This eventually caused a 50-60 percent drop in the wholesale prices of polished diamond. Retail prices dropped around 25-40 percent as sales of diamond and jewellery dropped by 20% in February. Poor demand also forced diamond giant De Beers to control its production until prices become statble and demand rises. The good thing is that many industry experts believe that the industry has already reached its bottom and stability will come; most probably in the next six months. However,Philip Claes, spokesperson, Antwerp World Diamond Centre (AWDC), said that recovery would not come till 2010.

Related articles:

Asia One Plush

Voice of America

The Indian Economic Overview

Emirates Business 24/7

The Gaea News

The Israeli Diamond Industry

Thaindian News

The Hindu Business Line (1)

The Hindu Business Line (2)

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