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India’s Entrepreneurial Spirit


Colin Shah, chairman of the Gem & Jewellery Export Promotion Council (GJEPC), talks about the country’s diamond and jewelry markets with Martin Rapaport

By Martin Rapaport


How has Covid-19 impacted India’s diamond trade?


When the pandemic hit, the country went into a lockdown. At that time, everyone was guesstimating that the problem would be over in two weeks at the most. Then those two weeks became four, and it became six weeks, and we were shut till the end of April 2020. Not only was India closed, but the entire world was going into lockdown. The feeling was that the polished-diamond market would slide. There were huge concerns about employment, bank credit lines, polished-diamond prices, and generally the future of the industry. By May, the industry had reached a consensus to curb manufacturing of diamonds.

In April, May and June, rough imports were significantly less. We normally import about $1 billion a month, and these three months put together totaled only $100 million. In August and September, to everyone’s surprise, demand opened up very well. A little cutting and polishing started. Everyone in the pipeline saw a surge in demand and margins.

[The period from] October to March, the last six months of India’s financial year, was one of the healthiest that the diamond market has seen in terms of demand and profitability. The second wave struck in April-May this year, but otherwise those six months were fabulous.

When you look at the pandemic, it started off very badly. But at the end of the year, everyone made healthy profits, [and] their inventories are at an all-time low. Diamond prices actually went up toward the end of the year, and for most qualities, demand was greater than supply. Believe it or not, even the debt that the Indian manufacturers had with the banks came down by a good 15% to 20%. The industry is much healthier today than it was pre-pandemic.

How is the current situation?

The diamond manufacturers today are in a reasonably healthy situation coming off a very nice, strong year. Their inventory levels are at all-time lows, with good profit margins over the past quarter. For July, August, September, everyone’s expecting it to be less profitable, but in terms of demand, it’s still very strong, especially from America and China.

Retailers in America were used to an oversupply of diamonds and jewelry-manufacturing capacity. Last year, because of the strong demand, there weren’t enough diamonds and there wasn’t enough jewelry-manufacturing capacity. This year, most of the majors have given purchase orders. That’s been good for the pipeline because the diamond manufacturers have the diamonds they need, or are manufacturing them. They are reasonably well-prepared for their orders for this fall. As far as China is concerned, the business is totally demand-dependent. If there is demand, pricing and supply will follow.

In terms of smaller diamonds, we’re seeing a severe shortage for a variety of reasons. Obviously, Argyle is no longer producing. Secondly, lab-grown manufacturing is taking away workers. Close to $1 billion of lab-grown will be cut and polished in Surat this year. There is a huge demand for workers, with the lab-grown sector taking the same workers the natural industry needs. Nearly 15% to 20% of the workers have gone back to their hometowns or have left the industry. Salaries have gone up — more or less doubled in the last 12 months. And even at double salary, there are not enough workers. This will have an inflationary impact on the pricing of diamonds.

Why is India so successful?


Indians are able to provide greater credit to grow their business, because they have a great trust network. The trust factor is huge when you’re handling millions of dollars of diamonds. Having a trust network enables better risk management and greater risk taking.

Whether you’re buying rough diamonds or manufacturing, you’re giving millions of dollars of diamonds on memo to dealers in Mumbai or Surat, and then ultimately even to end-retailers in America or China. The Indians have this figured out quite well, and that’s one key part of the success.

Secondly, there is India’s culture, its entrepreneurial spirit, and the great cooperative power of the Indian family. The family model has been massively successful for the Indian community, where one brother is in a Surat factory, one is in Mumbai, one’s in Dubai, Antwerp, New York, etc. Indians are able to manage their conglomerates because of this very capable family culture that they have.

Thirdly, Indians are better at polishing diamonds due to the entrepreneurial spirit of our workers. Indian cutters go beyond standard cutting. They are loupe-examining even small stones to make sure they get the most money out of production.

Those few points make all the difference between profit and loss — that ability of the Indian worker, the Indian promoter, the risk-bearing ability, and competence of family members across the globe. I think all these factors have made the Indian businessman more successful.

What’s going on with the rough supply in India? Will African demands for beneficiation continue?


Rough is about demand and supply. India’s strength is the smaller to mid-size stones. I think rough will come to India because we are able to pay the best prices and deliver the best result for those diamonds.

Yes, some amount of beneficiation will happen. That’s already happened in the last two, three years, so the larger stones will get cut and polished in Africa, Russia and wherever else. We all want to do beneficiation; we want to give some benefit to the local communities. But in the end, they need to realize the best prices also.

For the large Indian companies, it’s obviously worrying, because they have these huge investments in large factories and infrastructure in India. I guess we will see partnerships and tie-ups over the long term.

What about profitability? Are rough prices too high?

In the current market, cutters are obviously not making money, because the rough price has again gone up while the polished prices have stayed the same. There is also resistance from retail for further price increases in August and September. We have that challenge, but at some point over the next few months, prices will equalize, which is more or less what we see every year. There’s price resistance, and then you see some correction happening — either the assortments will improve or there’ll be some amount of price correction.

How profitable is the diamond manufacturing business compared to other businesses?

The diamond industry has a very healthy rate of return on your capital. It’s a very nice, compact business. You typically take a partner who’s working in Mumbai or Surat. One runs manufacturing in Surat and the other runs trading in Mumbai. If you are managing your focused business well, profitability is equal to or better than other industries in India, or even globally.

Because most of the diamond businesses are not listed, there is no upside due to market cap. Whatever profitability you have in your operations, you have. You don’t have stock market valuations.

That upside is missing for the gem and jewelry trade.

What does the future look like for India’s diamond and jewelry business?

Today, we are around $30 billion to $35 billion. In five to seven years, we have the potential to reach $60 billion to $70 billion. Exports will grow. In terms of diamonds, I think we are at $20 billion to $25 billion and maybe will grow to $30 billion. Lab-grown will probably grow from a $1 billion to a $2 billion-to-$5 billion industry very soon. We have huge potential in jewelry because we are equal to Hong Kong, China and Thailand.

The government wants to double India’s exports and will make a huge effort over the next two to three years. There’s going to be a lot of policy initiatives to grow our exports. Not only gem and jewelry exports, but gems and jewelry will get their share of help.

India used to cover the lowest end of the US and European markets. We serviced Walmart and specialized in price-point jewelry, not the better end. Now Indians are also in the better end of the business. We see jewelry and the lab-grown sectors picking up exponentially. The plain gold and fashion jewelry segments are also doing well.

The industry is evolving. Those concerned about dependency on rough diamonds are investing more in lab-grown and jewelry businesses. With jewelry, you can work with gemstones and synthetics. You don’t have to use diamonds to have a nice, profitable business.

A lot of capital and new things are coming into our industry. Young entrepreneurs are innovating. Some from diamond families where one son or daughter is getting into e-commerce. We are quite positive about growth over the next five years.

How many people does the diamond industry support in India?

Just diamonds is one million people with about 700,000 cutters. With jewelry, it’s about 3.5 million.

Of those 700,000 cutters, how many are smaller independent individuals?

I think that sector is not more than 10% to 15%, because the trade is getting more and more organized.

What efforts are being made to help the smaller cutters meet supply chain requirements that require audited working conditions? I understand that Surat is creating WeWork-like shared facilities so small diamond manufacturers can have a good place to manufacture.

As a council, we’ve already got four centers up and running, and six more are on the way. They are common facility centers where the worker has access to everything, from lasers to Sarine machines for planning the diamond. Smaller to medium-size companies have access to the best tech in the world. Their production can compete with the largest diamond manufacturers.

We have family group medical insurance covering nearly 700,000 to 800,000 workers and their families. The high-tech hospital we run for the workers is 24/7, and everything is free for the whole family. We are working to take care of the entire work cycle, to make sure that the workers are protected and [that] they have infrastructure to produce in a good way.

How big is India’s domestic diamond market?

India is the world’s third-largest diamond market after the US and China. It’s currently a $7 billion to $8 billion market at retail. All our top retailers are investing heavily in diamond jewelry, and we expect that the local market will continue to grow. India is also the second-largest market for gold and platinum.

India’s economy will grow from a $2 trillion-to-$3 trillion economy to a $5 trillion-to-$7 trillion economy. The large jewelry chains are doubling their number of stores. The diamond jewelry business will really grow over the next three to four years, because there’ll be a huge amount of buying happening for the new stores.

What advice do you have for a young person entering the business now?

My advice to young people is that the future in India is extremely bright. Everyone will get their share of opportunity, but the competition is fierce. Core competency is very important. You cannot be a player in any part of the vertical — whether it’s retail, manufacturing, wholesale, e-commerce or design — if you don’t have very excellent skill sets.

We are entering an era where equity will be available. Demand will be good, but competition will be strong as everyone fights for market share. Whatever you do, you should excel in that particular field. Then you will be successful.

Article from the Rapaport Magazine - September 2021. To subscribe click here.

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