Losing the Sparkle : Impact of the Global Crisis on the Diamond Cutting and Polishing Industry in India31 Dec 2009
In the aftermath of global economic crisis, the diamond industry of India was severely hit. In order to provide comprehensive social protection to this sector, the report analyses the crisis and recommends a range of social security options.
India is no longer a major producer of diamonds, as it was in the pre-British period during ancient and Mughal times. However, it has maintained its links with diamond production, by undertaking the cutting and polishing of diamonds. Today, India is responsible for about 80 percent of diamond cutting and polishing, in the world. Raw diamonds are imported into the country and polished diamonds are then exported. The average annual production of the diamond industry, in India, is around 78,000 carats (2005-2007). Of this, about 80 to 85 percent is exported and between 15 to 20 percent is consumed at home (CMIE 2008).
The export of finished (cut and polished) diamonds increased dramatically after the adoption of trade liberalization, from US$7,511million in 1999-2000 to US$19,667 million in 2007-08, indicating a compound annual rate of growth of about 13 percent (Table 1). The share of diamonds in the total commodity exports, from India, was 12.36 percent in 2007-08. About 25 percent of the diamonds were exported directly to USA, 25 percent were exported to Hong Kong, 10 percent to Belgium, five percent to Israel and around two percent each to Japan and Thailand. Since many of these countries manufacture diamond jewellery, which is then exported to USA, USA is a major buyer of diamonds; both directly and indirectly. The present crisis in USA has therefore had a severe impact on the diamond industry.
Globally, the diamond industry is organized in a value-chain, which includes a range of activities, such as exploration and mining, sorting, cutting and polishing, jewellery manufacturing and retail. Exploration and mining are done mainly in Africa (South Africa, Namibia, Botswana, Congo and Angola), Australia, Canada and Russia. These diamonds are then sorted according to size, shape, colour and quality and sent for cutting and polishing with the Kimberly Process Certificate, certifying that they are from conflict free sources. Cutting and polishing are labour intensive processes, usually performed in countries where labour is cheap. India is thus, a major destination for cutting and polishing activity.
Jewellery manufacturing and retail are two high value added processes in the global value chain. Together, they account for more than 70 percent of the total value added, while diamond cutting and polishing by itself is responsible for around eight percent of the value added.India is at the low end of the value chain of the diamond industry, which is dominated by large firms like De Beers, Al Rosa, Rio Tinto, Aber etc. India is highly dependent on the global market, both for raw materials as well as for final sales.
The global financial crisis has impacted the diamond industry in a number of ways of which the decline in the demand for diamonds in the US market and in other markets is the most important factor. This decline has resulted in large scale closure of diamond units in India. The second factor is the capital outflow from India, which has resulted in a liquidity crisis and has created a huge shortage of funds for the industry, particularly for the small units in the industry. Third, the depreciation of the rupee has raised the price of imported raw diamonds.
Of the total cutting and polishing of diamonds in India, 80 percent is done in Gujarat, while diamond trading is done largely in Mumbai (Maharashtra), followed by Surat (Gujarat). Surat is the main centre for diamond cutting and polishing but a number of towns and villages in Saurashtra (in the districts of Bhavnagar, Amreli, Rajkot, Porbandar, Junagad) and in North Gujarat (Banaskantha, Mehsana and Patan districts) are also centres for this activity. The crisis in the industry, has therefore had widespread impact in Gujarat.
This study, conducted in April and May 2009, has been undertaken to assess the impact of the global financial crisis on the diamond industry in India and to recommend measures to help diamond workers (as well as the industry, particularly the small producers in the industry) to cope with the situation. The specific objectives of the study are (i) to examine the impact of the global crisis on workers and small producers, in the diamond industry, (ii) to design interventions to address the adverse impact on workers and on the sector, in the short and medium terms, and (iii) to recommend social security options, in an attempt to provide comprehensive social protection.