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India
By Zainab Morbiwala
India’s diamond cutting and polishing industry, frustrated by its lack of access to credit from its home-country banks, appears to be getting some much-needed help from the international banking community. The first to step forward was Luxembourg, followed by Dubai and now Belgium. The Times of India reported that the Belgian consulate in March promised easy bank financing and relaxation in the tax structure to the small and medium-size diamond traders from Gujarat, with a special focus on Surat, where most of the country’s diamond processing and manufacturing is done. To move the discussions forward, Belgium’s Consulate General Karl Van Den Bossche visited Surat in early March. He was accompanied by Belgium’s trade and investment commissioner, a further indication of how serious the country is about extending financial help.
It is important to note that small and medium manufacturers from Surat have been upset with their treatment by banks in India. The Times of India reported that the total exposure of bank finance to the big companies is close to $5.5 billion in India, and the small and medium enterprises, referred to as SMEs, get barely 1 percent of the total. Because they are shut out by banks, the SMEs have to depend on large diamond companies for cash financing at interest rates as high as 8 percent. International support began in February. It was then that Gaston Stronck, Luxembourg ambassador to India, invited Indian diamond company owners to set up offices in his country and extended easy bank financing at rates lower than 4 percent. Delegates from Dubai also visited India recently to personally extend an offer of support. Chandrakant Sanghavi, regional chairman of the Gem and Jewellery Export Promotion Council (GJEPC), told The Times of India, “The Belgium authorities are ready to extend all types of assistance, including making the travel visa process easier for the entrepreneurs.” According to Dinesh Navadia, president of the Surat Diamond Association (SDA), in addition to the Belgium consulate, Flanders Investment and Trade (FIT) of Belgium also has promised support to the SME sector. This recent offer from the Belgian government leaves the Indian banks red-faced with embarrassment because they have appeared unwilling to finance diamond manufacturing in their own country. Vipul Shah, chairman of GJEPC, said the council is doing its bit to liaise with the SMEs and banks. Although the Indian SMEs have not yet made any decision on accessing capital from banks outside their home country, they consider it welcome news to receive the offers for help in the first place.
A major concern for the Indian diamond industry revolves around the prices of rough, which are controlled by the mining companies and the sightholders. Each time De Beers increases its prices, the market sentiments turn negative. The year 2013 saw continuous increases in prices and, as a result, constant downturns in confidence. It came as a major relief when De Beers announced that it had not increased the rough diamond prices at its second sales sight concluded in Gabarone in February 2014. In another development that would boost the diamond industry in the country, India has moved ahead in cementing a long-term deal with ALROSA to ensure a steady supply of diamonds. To advance this effort, India’s Commerce and Industry Minister Anand Sharma recently met with Russian Deputy Prime Minister Dmitry Rogozin to discuss how both countries could boost commerce and expand their trade relationship. Diamond trade was one point of discussion. As reported in The Economic Times, Indian companies already procure rough diamonds from ALROSA through spot or medium-term contracts. According to GJEPC’s Shah, there is buyer resistance to the prices of rough seen in the market. “The B2B movement in the industry is doing well but what remains to be seen is whether it translates well in the business-to-consumer (B2C) segment.” Elaborating on international industry demand, Sanjay Shah, director of Gold Star Diamond Pvt. Ltd., stated, “Internationally, we are witnessing a good demand for .20-carat to .50-carat stones in VS to I2 quality in all colors.” He also said sieve sizes are strong across the board.
Commenting on the Hong Kong show, considered an important barometer of global buying trends, Sanjay Shah said, “the Hong Kong show was upbeat, especially in polished. There was good buying happening but I also felt people were still cautious to make major purchases. In polished goods, most buyers were from India and China.” GJEPC’s Shah said, “The feedback I have received from all the Indian participants at the Hong Kong show has been very positive.”Article from the Rapaport Magazine - April 2014. To subscribe click here.
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