3. trends and direction of diamond trade

7/29/2019 3. Trends and Direction of Diamond Trade

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Chapter 3

Trends, Growth and Direction of Diamond

Trade of India


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3.1. Meaning of Trade:

In simple terms, trade is the transfer of ownership of goods and services

from one person or entity to another by getting something in exchange from the

buyer. It is a branch of commerce which is concerned with the exchange of goods

and services. It may be a barter exchange, i.e., exchange of goods for goods or

monetary trade where money is used as a medium of exchange.

In prehistoric times, trade was in crude form with goods being exchanged

for goods. This is known as barter exchange. Barter exchange suffered from

number drawbacks. Some of these drawbacks were double coincidence of wants,

indivisibility of certain goods, absence of common measure of value and difficulty

in storage of wealth. To solve difficulty of barter, money was evolved. Initially,

precious stones and metals were used as a medium of exchange. The evolution of

money gave boost to trade and commerce.

3.2. Classification of Trade:Trade may be classified on the basis of scope of its territorial boundaries as

under:

(a) Internal Trade: Trade between two regions of the same country is known

as internal trade. It is also known as domestic trade or home trade. It is

confined to the national boundaries of a nation. For example, trade

between Gujarat and Rajasthan.

(b) External Trade: Trade between two countries with different socio-

economic and political environment is referred to as external trade. It is

also known as foreign trade or international trade. For example, trade

between India and UK. External trade may be further classified as under:

- Export: Export means selling goods to the customers based

in a foreign territory, outside the national boundaries of a country. For

example, when goods are sold from India to Pakistan, it is an export

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trade. Export is the best method of expansion when additional capacity

exists in the business organisation.

- Import: Import means purchasing goods from a seller

based in a foreign territory, i.e., outside the national boundaries of a

country. For example, when goods are purchased by India from the

U.S.A., it is an import trade for India. The government discourages

imports, unless essential because they lead to outflow of foreign

currency and depletion in foreign exchange reserves of the nation.

- Entrepot Trade: Trade that involves re-exporting of

imported goods is referred to as entrepot trade. It is also known as re-

export trade. For example, an Indian trader may buy goods from

Bangladesh and then sell to China. Ports which are conveniently

located act as the distribution centres for wide areas. For example, ports

of Singapore and Hong Kong.

Internal trade is important from national point of view while external trade

is significant from international point of view.

3.3. External Trade of India:

India is looked upon as a country with immense resources, spread through

its length and breadth. India was famed for her fabulous wealth ever since the

ancient times till the establishment of the British Empire. Indian goods were

exported to far off places which brought great wealth to Indian economy.

However, Mughal rulers and later the British plundered this wealth which made

Indian economy solely dependent upon imports for most of its requirements.

By the time India gained Independence from the British in 1947, the

economy has completely dependent on foreign sources for the supply of its

requirements. There were hardly any manufacturing facilities to suffice the needs

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of the growing Indian population.

In post-independence period, the main objective of the Indias external

trade policy was to protect its market from foreign competition. In the late 1970s

and early 1980s, the trade regime was based on a complex system of licensing.

Indias trade policy heavily relied on quotas rather than on tariffs. 1 Imports were

regulated through a licensing system without any policy prescriptions. All these

factors led to poor development of Indias external trade, both imports as well as

exports, in the post-independence period.

The foreign exchange reserve crisis of 1991 made it necessary for India to

adopt policy of trade liberalisation. Licensing was scrapped and a number of trade

reforms were introduced to give boost to Indias export trade. This had significant

impact on several sectors of Indian economy such as IT sector, gems and

jewellery sector, capital goods sector, etc.

3.4 Trends in Indias Export and Import since Independence:

Indias foreign trade can be studies with reference to Export and Import:

(1) Export: Export means sale of goods or services by the resident of one country

to the resident of another country. The export of goods from India are broadly

classified into the following four categories:

Fig. 3.1 Composition of Indias Exports

1

Bhagwati, J.N. and Srinivasan T.N. (1975), Foreign Trade Regimes and Economic Development: India, New York, Columbia University Press.

4
http://lh4.googleusercontent.com/_iFIztPmvqg8/TZRfdIanroI/AAAAAAAAEa4/9CXrPt5OI4I/Composition-Of-India-Export.png


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(2) Import: Import means purchase of goods or services by the resident of one

country from the resident of another country. The import of goods in India

are broadly classified into the following four categories:

Fig. 3.2 Composition of Indias Imports

The following table analyses the export and import trade of India since

independence. It can be seen in the table 2.1 that the total exports of India stood at

Rs. 716 crore during the period 1951-52 while imports stood at Rs. 890 crore

resulting into trade deficits of Rs. 174 crore, which was 1.7% of the GDP of the

country. Due to the policy of protectionism, Indias export and import trade

remained sluggish in the post-independence period with import rising by 4754 %

between the periods 1950-51 to 1990-91, exports rising by only 4446% during the

same period. With imports rising at proportionately higher rate than exports, India

suffered from adverse trade balance. It rose to a maximum of 4.2% of GDP in the

year 1971-72 and then to gradually fall to 3.8% of GDP in the year 1981-82 and

2.1% in the year 1991-92.

Indias exports and imports experienced a significant growth in the post-liberalisation period. Within a span of two decades between 1990-91 to 2010-

2011, exports rose by 3410% and imports rose by 3797%. Some of the sectors in

India such as IT sector and gems and jewellery sector became the drivers of

export-led growth of the Indian economy. Trade balance eased at 1.4% of GDP at

the end of 2000-2001 which gradually increased due to liberalisation of imports in

the subsequent period to reach peak of 10.1% of GDP in the year 2008-2009. It

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marginally reduced to 8.5% of GDP in the year 2009-2010.

Table No. 3.1

Indias Exports, Imports, Trade Balance and Share in GDP

Period Exports(Rs. Crores)

Imports(Rs. Crores)

Trade Balance Trade balance asa % of GDP

1951-52 716 890 174 1.7

1961-62 642 1122 480 3.7

1971-72 1,608 1,825 217 4.7

1981-82 6711 12,549 5838 3.8

1991-92 32,553 43,198 10,645 2.1

2000-2001 203,571 230,873 27,302 1.4

2010-2011 1,142,649 1,683,467 540,818 N.A.N.A. Not available.

Source: Economic Survey, Government of India, 201011, p.A-80.

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1800000

1951-52 1961-62 1971-72 1981-82 1991-92 2000-01 2010-11

Exports (Rs. Cr.) Import (Rs. Cr.)

Fig. No. 3.1

Indias Exports, Imports, Trade Balance and Share in GDP

Analysis of the Exports:

It can be seen that Indias exports have registered a five-to-six fold increase

in the last decade from Rs. 203,571 crore in the year 2000-01 to Rs. 1,142,649

crore in the year 2010-2011. While the compound annual growth rates (CAGR) of

Indias exports (in US dollar terms) was 8.4 per cent in the 1990s, it increased to

19.5 per cent during 2000-01 to 2008-09. The resilience of Indias trade can be

seen from the fact that its export and import growth, which fell to 0.6 per cent as a

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result of the shock from the 2008 global economic crisis, rebounded to 35.1 per

cent in 2010-11. India not only reached pre-crisis levels in exports, but surpassed

pre-crisis trends in export growth rate unlike many other developing and even

developed countries.

Indias share in global exports also increased from 0.7 per cent in 2000 to

1.5 per cent in 2010 (1.4 per cent as per WTO). Its ranking in the leading

exporters improved from 31 in the year 2000 to 20 in the year 2010.

During the first half of 2011-12, Indias exports witnessed a high growth of

40.6 per cent. However, since October 2011 there has been a deceleration in

export growth as a result of the crisis originating in the periphery of the euro zone

area and spreading to the core economies resulting in a now evident mild

recession in the euro area.

Exports registered a high growth of 61.1 per cent in July 2011. After that

growth decelerated to 41.5 per cent, 25.2 per cent, and 18.1 per cent in August,

September, and October 2011 respectively. In November 2011, export growth was

negative at 0.5 per cent but in December 2011 and January 2012, it was positive

but low at 6.7 per cent and 10.1 per cent respectively. Cumulative exports were at

US $242.8 billion, registering a growth of 23.5 per cent during 2011-12 (April-

January). During April-December 2011, the export sectors that have done well are

petroleum and oil products registering a growth of 55 per cent; gems and

jewellery 38.5 per cent; engineering 21.6 per cent; cotton fabrics made ups, etc.

13 per cent; electronics 21.1 per cent; readymade garments 23.7 per cent; and

drugs 21.5 per cent.

Analysis of the Imports:

Indias imports registered a seven fold increase in the last decade from Rs.

230,873 crore in the year 2000-2001 to Rs. 1,683,467 crore in the year 2010-2011.

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While the compound annual growth rates (CAGR) of Indias imports (in US

dollar terms) were 8.4 per cent in the 1990s, it increased to 25.1 per cent during

2000-01 to 2008-09. Indias imports that had fell to 5 per cent in 2009-10 as a

result of the shock from the 2008 global economic crisis, rebounded to 28.2 per

cent in 2010-11.

Indias share in global imports also increased from 0.8 per cent in 2000 to

2.2 per cent in 2010 (2.1 per cent as per WTO). Its ranking in the leading

importers improved from 26 in the year 2000 to 13 in the year 2010.

The increase in growth of imports in rupee terms in 2010-11 was due to

growth in both volume and unit value indices. The volume index witnessed a

growth of 10.1 per cent in 2010-11, due to the high growth of manufactured goods

classified chiefly by materials (56 per cent), beverages and tobacco (31.1 per

cent), and chemicals and related products (8.9 per cent). The unit value index of

imports registered a growth of 11.2 per cent mainly due to growth in unit values

of crude materials, inedible, except fuels (23 per cent), mineral fuels, lubricants

and related materials (17.1 per cent), and machinery and transport equipment

(10.1 per cent).

Analysis of Trade Deficit:

India has been facing the problem of trade deficit since independence due

to excessive imports in relation to exports. India is leading exporter of gems andjewellery, textiles, engineering goods, chemicals, leather manufactures and

services. India is poor in oil resources and is currently heavily dependent on coal

and foreign oil imports for its energy needs. Other imported products are:

machinery, gems, fertilizers and chemicals.

Indias trade deficit widened considerably during April-February 2011-12

compared with the corresponding period of the previous year, owing to subdued

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export growth coupled with high imports. Notwithstanding the rupee depreciation,

the trade deficit increased primarily due to a slowdown in global demand,

inadequate pass through of higher global oil prices and the relatively price inelastic

nature of some of Indias imports, viz., gold and silver. Even the growth in non-oil

non-gold imports remained sizeable despite signs of a slowdown in the domestic

economy. Given the adverse global environment and elevated global crude oil

prices, Indias trade deficit may remain high in near future. A slight moderation

may, however, be expected in imports of gold following the increase in import duty

announced in the Union Budget for 2012-13.

3.5 Composition of Indias Foreign Trade:

Over the last six decades, the commodity composition of Indian exports

has changed in the face of structural changes in the Indian economy. The

composition of Indian export has gradually changed from primary products to

manufactured goods and finally to services.

In the late 1970s and early 1980s, the trade regime was based on a complex

system of licensing. Indias trade policy heavily relied on quotas rather than on

tariffs.2 Imports were regulated through a licensing system without any policy

prescriptions. However, import licenses allocated reflect two major criteria:

(1) The principle of essentiality, and

(2) The principle of indigenous non-availability.

Thus, the imports, in terms of both magnitude and composition, were to be

permitted only if the firm in question certified to the government that they were

essential (as inputs or equipment for production). Almost all imports were

subject to discretionary import licensing or were canalized by the government

monopoly trading organizations. The only exceptions were commodities listed in

2

Bhagwati, J.N. and Srinivasan T.N. (1975), Foreign Trade Regimes and Economic Development:India, New York, Columbia University Press.

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the Open General License (OGL) category. The import of consumer goods was

banned (except those that were considered essential and could only be imported

by the designated government canalising agencies).

Structural Changes in Exports:

In the 1950s, agricultural and allied commodities, including farm processed

products dominated the export basket. The share of these products was 32.75 per

cent. The share of agriculture and allied commodity exports fell steeply from

44.3% of total exports in the year 1960-61 to merely 8.5% of total exports in the

year 2010-11. The share of ore and minerals also fell from 8.1% of the total

exports in the year 1960-61 to 2.6% in the year 2000-01 and finally rose to 4.2%

in the year 2010-11. The share of the manufactured goods in the total exports was

nearly 39 per cent in 1950-51 which composed of cotton piece goods, gunny bags

and gunny clothes. These were basically agriculture-based products. In 1960-61

the share of manufactured products increased to 45.3 per cent and prior to

economic reforms in 1990-91 it went up to 72.9 per cent and reached its peak in

2000-01 to 72 per cent, thereafter downward trend was set in and it was 68.9 per

cent in the year 2010-11. Share of chemicals, dyes, pharmaceuticals, gems and

jewellery, iron and steel, machinery, transport equipment, electronic goods and

clothing products increased, both in total exports and in world exports. However,

the share of manufactures of metals declined in total exports but enhanced its

share in world exports. Crude and petroleum products entered in substantial

proportions in 2000-01 and reached 17.3 per cent of the total exports in 2010-11.The share of gems and jewellery has increased considerably in Indias exports

from mere 0.2% in the year 1960-61 to 16.6% of total exports in the year 2000-

2001 to fall marginally at 14.9% in the year 2010-2011. These trends can be seen

in the following table.

Table 3.2

Composition of Indias Exports since Independence (%)

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Commodity Groups 1960-61 1990-91 2000-2001 2010-2011

Agriculture and Allied Products 44.3 19.5 13.5 8.5

Ores and Minerals 8.1 4.4 2.6 4.2

Manufactured Goods

Gems and Jewellery

45.3

0.2

73.0

16.2

78.0

16.6

68.9

14.9Crude and Petroleum Products 1.1 2.9 4.2 17.3

Other unclassified Items 1.2 0.2 1.7 1.2

Total 100.0 100.0 100.0 100.0

Source: Compiled from various issues of Economic Survey, Government of India.

Structural Changes in Imports:

Indias imports were broadly classified into bulk and non-bulk items. The

product groups such as food and allied products, fuel, ores and metals, fertilizers

and paper, paper board and pulp fall under bulk category and rest of the items in

non-bulk category. In 1960-61, the share of bulk items in total imports accounted

for 50 per cent which fell down to 44.5% in the year 1990-91. It further fell down

to 39% and rose to 52.5 in the year 2010-2011. The main reason for the rise in

value of bulk items in Indias import basket is the rise in international oil prices.

The liberalization episode did not dramatically alter the bulk imports although

there was decline in other items of imports, namely food and allied products and

fertilizers. Many of the restricted and canalized items were removed from

quantitative restriction lists. Bulk items still comprise the main proportion of the

national import bill. The crude oil production has increased in India after 2001-02.

Its contribution is less than 18 per cent of domestic consumption.

Table 3.3

Composition of Indias Imports since Independence (%)

Commodity Groups 1960-61 1990-91 2000-2001 2010-2011

Food and allied products 19.1 2.3 2.7 3.2Fuel 6.2 25.0 31.0 33.2

Ores and metals 15.2 11.0 2.6 14.1

Fertilizers 7.9 4.1 1.3 2.4

Paper, board and pulp 1.6 2.1 1.4 0.6

I. Total (Bulk Item) 50.0 44.5 39.0 53.5

Capital goods 31.8 24.2 11.0 13.1

Others:

Pearls & precious stones

Gold and silver

18.2

(0.6)

(N.A.)

31.3

(8.7)

(N.A.)

50.0

(9.6)

(9.2)

33.4

(7.7)

(8.1)

II. Total (Non-bulk Item) 50.0 55.5 61.0 46.5

(I + II) Total Imports 100.0 100.0 100.0 100.0

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Source: Compiled from various issues of Economic Survey, Government of India.

3.6 Export of Gems and Jewellery from India:

Gems and Jewellery has become an important component of Indias

foreign trade. It is an important emerging sector in the Indian Economy. Ranked

among the fastest growing sectors, it is also a leading sector for foreign exchange

generation. The gems and jewellery industry is very much fascinating being

traditionally glamorous and artistically modern. It employees and engages

millions; cover wide activities such as raw material procurement from far flung

Africa, Australia, Canada and Russia, and transforming these into products in

demand with the skills available in China, India, Italy and Turkey for the

sophisticated markets in the USA, Europe, Far East, Middle East and Asia.

The Gems and Jewellery trade of India basically include the following

three commodities in its ambit:

(a) Diamonds: Diamonds is the main constituents of the Gems and Jewellery

trade of India. India mainly imports rough diamonds from other countries

and processes and re-export them. In recent years, the domestic demand for

cut and polished diamond has increased. In 2010-11, the export of cut and

polished diamonds was US$ 28251.92 million as compared US$ 18237.56

million during 2009-2010, recording a growth of54.91 per cent.

(b)Gold Jewellery:

Gold has always been the jewellers' favourite metal given

its intrinsic lustre and ease of fabrication. Gold jewellery enjoys the leading

position in most markets across the world, and in many ways forms the

backbone of the precious jewellery industry. Export of Gold jewellery also

grew in 2010-11, registering US$ 12885.59 million as compared to US$

9669.10 million in 2009-10. A growth of33.27 per cent was recorded.

(c) Coloured Gemstones: Coloured gemstones include all other forms of

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jewellery; precious gemstones such as emeralds, sapphires, rubies and

tanzanite and semi-precious gemstones like pearls. Export of coloured

gemstones was registered at US$ 314.54 million in 2010-11 as compared to

US$ 286.78 million in 2009-10, showing a growth of9.68 per cent.

Among the three components of gems and jewellery exports from India,

cut and polished diamonds constitute a major segment. Export of cut and polished

diamonds constituted 66% of the total exports from Gems and Jewellery sector

during the financial year 2010-2011. The industry is highly fragmented making it

difficult to track supply, demand and global trade.

(A) Trends in Exports of Gems and Jewellery vis-a-vis Total

Merchandise Exports from India:

Gems and jewellery and diamonds have been a part of the Indian

civilisation since its recorded history. The significance of the gems and jewellery

industry in the Indian economic scenario is a development of the last four

decades. The industry has registered a remarkable growth over the last four

decades. The exports from gems and jewellery sector grew from just US$ 28

million in 1966-67, representing a 3 per cent of total merchandise exports of the

country, when the Gem and Jewellery Export Promotion Council (GJEPC) was

established, to US$ 42.84 billion in F.Y. 2011-12, contributing 15 per cent of total

exports, making it a significant foreign exchange earner for the country. The

industry is a truly global one, with both suppliers and buyers from many differentcountries. The UAE (44 percent), Hong Kong (25 percent) and USA (12 percent)

are among the major buyers, while Belgium, which accounts for 21.55 percent of

all imports of raw materials, is by far the major supplier.

The table no.1.1 and figure no. 1.1 analyses the share of gems and

jewellery sector in total merchandise exports of India during period ranging from

F.Y. 2001-2002 to F.Y. 2011-2012. Gem and jewellery sector is one of the

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leading foreign exchange earners of the country.The export of gems and jewellery

sector stood at US$ 7306 million in the F.Y. 2001-2002 in the total merchandise

export from India which stood at US$ 43,827 million during the same period. The

gems and jewellery sector contributed almost 16.67% of the total merchandise

exports of the country. This proportion has remained more or less same till the

F.Y. 2005-2006. During the F.Y. 2006-2007, the share of gems and jewellery

sector in the total merchandise export of the country fell to 12.64% and further to

12.07% in the F.Y. 2007-2008. This was due to failure of major banks in the US

and the debt crisis in the European economy.

Table No. 1.1

Proportion of Gems and Jewellery Exports in the Total Merchandise Exports of

India (2001-2012)

Year Export of Gems &

Jewellery

(US$ in Million)

Total Merchandise

Export

(US$ in Million)

% Share

in Total Exports

2001-2002 7306 43827 16.67%

2002-2003 9030 52719 17.13%

2003-2004 10573 63843 16.56%

2004-2005 13762 83536 16.47%2005-2006 15529 103091 15.06%

2006-2007 15983 126414 12.64%

2007-2008 19692 163132 12.07%

2008-2009 28411 185295 15.33%

2009-2010 29081 178751 16.27%

2010-2011 40508 251136 16.13%

2011-2012 (P) 46957 304624 15.41%

Source: Compiled from the annual reports of GJEPC, 2001-2002 to 2011-2012.

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7306 9030 10573 13762 15529 1598319692 28411 29081

40508 469574382752719

6384383536

103091126414

163132185295 178751

251136

304624

0

50000

100000

150000

200000

250000

300000

350000

2001-022002-032003-042004-052005-062006-072007-082008-092009-102010-112011-12

(P)

Export of Gems and Jewellery Total Merchandise Export

Fig. No. 1.1 Proportion of Gems and Jewellery Exports in the Total Merchandise

Exports of India (2001-2012)

The exports from gems and jewellery sector again bounced back in the

F.Y. 2008-2009 to reach US$ 28411 as against the total merchandise export of

India which stood at US$ 185295, thus contributing 15.33% of the total

merchandise export of the country. In the following years, the export of gems and

jewellery not only retained but strengthened its position to contribute 16.27% in

the F.Y. 2009-2010, 16.13% in the F.Y. 2010-2011 and 15.41% in the year 2011-

2012.

Observation: The share of gems and jewellery sector exports in the total exports

from India has remained more or less stable at 15% during last decade with some

variations in between 2006-2008.

(B) Average Annual Growth in the Exports of Gems and Jewellery vis-

a-vis Total Merchandise Exports from India: (2001-2012)

Table no. 1.2 and figure 1.2 analyses the average annual growth rate of exports of

gems and jewellery sector from India vis-a-vis average annual growth rate of total

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merchandise exports from India. It can be seen that the export of gems and

jewellery from India has grown consistently over last decade at variable rate.

During last decade, the export of gems and jewellery has increased 5.5 times

while that of total merchandise exports from India increased by 6 times.

Table No. 1.2

Average Annual Growth in the Exports of Gems and Jewellery vis-a-vis Total

Merchandise Exports of India (2001-2012)

Year Export of

Gems &

Jewellery

(US$ in Million)

% Growth over

Previous F.Y.

Total

Merchandise

Export

(US$ in Million)

% Growth over

Previous F.Y.

2001-2002 7306 - 43827 -

2002-2003 9030 23.59 52719 20.29

2003-2004 10573 16.56 63843 21.10

2004-2005 13762 16.47 83536 30.85

2005-2006 15529 15.06 103091 23.41

2006-2007 15983 2.93 126414 22.63

2007-2008 19692 23.20 163132 29.05

2008-2009 28411 44.28 185295 13.59

2009-2010 29081 2.36 178751 3.53

2010-2011 40508 39.30 251136 40.50

2011-2012 (P) 46957 15.92 304624 21.30


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0

23.59

16.56 16.4715.06

2.93

23.2

44.28

2.36

39.3

15.92

0

20.29 21.1

30.85

23.41 22.63

29.05

13.59

0

40.5

21.3

0

5

10

15

20

25

30

35

40

45

50

2001-022002-032003-042004-052005-062006-072007-082008-092009-102010-112011-12(P)

AnnualAveragegrowthRate(%)

Years

Average Annual Growth Rate of Gems and Jewellery Exports

Average Annual growth Rate of Total Merchandise Exports

Fig. No. 1.2 Average Annual Growth in the Exports of Gems and Jewellery vis-

a-vis Total Merchandise Exports from India: (2001-2012)

During 2002-2003, the export of gems and jewellery has increased by

23.59% over its previous year which is more that the annual average increase in

merchandise exports of India which was 20.29% during the same period. During

three years from 2003-2004 to 2005-2006, the exports of gems and jewellery has

increased at a constant rate of 16% p.a., as against total merchandise exports at

approximately 25% p.a. In the year 2006-2007, average annual growth rate of

export of gems and jewellery sector fell to mere 2.93%, although the annual

growth rate of total merchandise exports sustained at 23%. The reasons for this

sharp fall in average annual growth rate of gems and jewellery sector was due to

failure of some reputed companies and banks in the US and reports of debt crisis

in European economy.

In the year 2007-2008, the annual average growth rate of exports of gems

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and jewellery sector revived at 23.20% and total merchandise exports at 29%. In

2008-2009, although the total merchandise exports from India fell drastically at

13.59%, export of gems and jewellery sector jumped up by 44.28%. In 2009-

2010, total merchandise exports grew negatively by 3.53% but export of gems and

jewellery sector managed to grow by 2.36%. The impact of crisis in USA and the

European economy can be clearly seen on both total exports as well as export of

gems and jewellery sector during this period. However, the revival package

announced by the respective governments and the efforts of the Indian

government to revive exports led to revival to exports in 2010-2011, with gems

and jewellery export rising by 39.30% and total merchandise export rose by

almost same rate at 40.50%. In the F.Y. 2011-2012, the average annual growth

rates of gems and jewellery exports and total merchandise exports of India

stabilised at 16% and 21% respectively.

(C) Correlation between Average Annual Growth in the Exports of

Gems and Jewellery vis-a-vis Total Merchandise Exports from

India: (2001-2012)

X = Average Annual growth Rate of Export of Gems and Jewellery Sector

Y = Average Annual growth Rate of Total Merchandise Exports from India

Table No. 1.3

Correlation between Average Annual Growth in the Exports of Gems and Jewellery

vis-a-vis Total Merchandise Exports of India (2001-2012)

Year % Growth over

Previous F.Y.*

(X)

% Growth over

Previous F.Y.*

(Y)

XY X2 Y2

2002-2003 24 20 480 576 400

2003-2004 17 21 357 289 441

2004-2005 17 31 527 289 961

2005-2006 15 23 345 225 529

2006-2007 3 23 69 9 529

2007-2008 23 29 667 529 841

2008-2009 44 14 616 1936 196

2009-2010 2 4 8 4 16

2010-2011 39 41 1599 1521 1681

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2011-2012

(P)

16 21 336 256 441

Total 200 219 4988 5634 6035

*rounded off to nearest unit.


Karl Pearsons Coefficient of Correlation =

N

YY

N

XX

N

YXXY

22

22 )()(

=

10

)219(6035

10

)200(5634

10

2192004988

22

X

=1980.354228.40

43804988

X

=8017.1422

608

= 0.4273

Interpretation of the results: It can be concluded that there is a weak positive

correlation between average annual growth rate of export of gems and jewellery

and average annual growth rate of total merchandise exports from India.

Observation: It is observed in the above analysis that the average annual growth

rate of export of gems and jewellery from India is independent of the average

annual growth rate of merchandise exports. This is clearly reflected in the years of

the US and the European financial crisis.

3.7 Components of Export of Gems and Jewellery from India during

2001-02 to 2011-2012:

The gems and jewellery sector consists of export of the following 10 items in its

ambit:

(1) Cut and polished diamonds.

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(2) Coloured gem stones.

(3) Gold jewellery.

(4) Pearls.

(5) Silver jewellery.

(6) Synthetic stones.

(7) Costume fashion jewellery.

(8) Sales of above items to foreign tourist.

(9) Export of Rough diamonds.

(10)Rough stones and pearls.

Among these, cut and polished diamonds, coloured gem stones, gold jewellery

and rough diamonds are the major contributors. Therefore, the researcher has

considered the above four items in his analysis.

Table 1.3

Components of Export of Gems and Jewellery from India during 2001-02 to 2011-

2012

(in US$ in Million)

Year Cut &

Polished

Diamonds

Coloured

Gem Stones

Gold

Jewellery

Rough

Diamonds

Total

Exports*

2001-2002 5982 183 1169 142 7569

2002-2003 7105 192 1512 241 9162

2003-2004 8603 178 2666 533 12112

2004-2005 11163 193 3784 357 15658

2005-2006 11831 234 3882 566 16701

2006-2007 10910 247 5209 565 17159

2007-2008 14205 276 5562 567 20921

2008-2009 14804 261 8746 776 24894

2009-2010 18244 287 9679 744 294422010-2011 28221 315 12702 1137 43048

2011-2012 (P) 23330 343 16517 1773 46957

*Total export includes export of all the constituents of gems and jewellery sector.

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Figure No. 1.3 Major Components of Gems and Jewellery Exports from India

(2001-2012)

The table no. 1.3 and figure no. 1.3 analyse the export of gems and jewellery

sector from India during the period from 2001-02 to 2011-2012. Cut and polished

diamonds, coloured gem stones, gold jewellery and rough diamonds are the four

major components of export basket of gems and jewellery sector. Among these,

the export of cut and polished diamonds majorly contribute to total export of the

sector. Considering the major contribution of the cut and polished diamonds in the

total exports from the gems and jewellery sector, the researcher has selected

analytical study of diamond trade of India under the title Diamond Trade of

India.

Observation: It is observed in the above analysis that the cut and polished

diamonds constitute major parts of the gems and jewellery export of India. Cut

and polished diamonds consisted of more than 50% of the total export of gems

and jewellery sector from India.

4.1 An Overview of Indian Diamond Industry:

From ancient times, India is well known in the world as the birthplace of

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diamonds. It has remained the home of diamonds for over two millenniums. It is

difficult to trace the origin of diamond but the history says that in the remote past,

diamonds were mined only in India. Diamond production in India can be traced

back to almost 8th century B.C. India in fact, remained undisputed leader till 18th

century when Brazilian fields were discovered in 1725 AD followed by

emergence of South Africa, Russia and Australia. World famous diamonds such

as Koh-i-noor, the Orloff, the Great Mogul, Sancy Hope, Florentine, Nassak,

Regent, Pitli, Nizam etc. were the products of India and many of these world

famous diamonds were discovered in India from 16 th and 17th centuries.

Today, Indian diamond trade mainly consists of import trade whereby rough

diamonds are imported into the country mainly for the purpose of cutting and

polishing and after processing they are re-exported. Nine out of ten diamonds cut

and polished in the world are cut and polished in India. India processes 100mn

carats of rough diamonds against the worlds total output of 117mn carats of rough

diamonds, and is the largest diamond polishing centre. The USA, on the other hand,

is the largest market for loose polished diamonds and diamond jewellery.

India leads the globe in diamond manufacturing with 60% share in value,

85% in volume and 92% share in the number of pieces produced. In India, rough

diamonds have been mined since historic times. But it was only after the year

1962 AD that processing, cutting and polishing of diamonds developed as an

industry. Nearly 80% of the country's natural diamond processing is done in

Gujarat, of which Surat and Navsari, and some districts of Saurashtra region

account for most of it. The cut and polished diamonds are mainly exported to the

United States of America, Japan, Belgium, Hong Kong, Switzerland and

Thailand. Of these, the USA, Japan and Switzerland are consumer markets and

the rest of them are trading countries. Some commission agents supply roughs to

the firms in India for processing on behalf of the sight-holders who take the

finished product for export.

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The Indian gems and jewellery industry is competitive in the world market

due to its low cost of production and the availability of skilled labour. India has a

large pool of skilled and low cost manpower for its gems and jewellery industry.

The country has worlds one of the best skilled manpower to design and make

high volumes of exquisite jewellery at relatively low labour cost. The cost per

carat for cutting and polishing diamond is US$ 10 in India as compared to US$ 17

in China and US$ 150 in Belgium. The Indian diamond industry employs around

2 million people (constituting 94 per cent of global workers in the industry) with

more than 500 hi-tech laser machines. It also has the largest resource hub in

diamond cutting and processing. Low cost of labour involved in production of

finished diamonds has lured global attention, thereby resulting into the growth of

the industry. In addition, the industry has set up a worldwide distribution network,

of more than 3,000 offices for the promotion and marketing of Indian diamonds.

The industry is well supported by government policies and the banking

sector with around 50 banks providing nearly $3 billion of credit to the Indian

diamond industry. India has its diamond bourse functioning at Mumbai. India is,

therefore, a significant player in the world gems and jewellery market both as a

source of processed diamonds as well as a large consuming market.

The Indian diamond industry is largely family owned. Earlier it was

scattered in a cottage industry format but now it has emerged as a modern

mechanized industry undertaking its operations on a large scale with modern

technology. Still, 96% of industry consists of family-owned businesses scattered

in large area. Only 4% industry comes under organized sector.

4.1 Significance of Diamond Trade for Indian Economy:

The Gems and Jewellery industry in India is structured as diamonds,

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jewellery and precious and semi-precious stones. These segments are further

divided into sub-segments. The following diagram indicates the structure of gems

and jewellery sector and various sub-segments operating under the umbrella term.

Gems and Jewellery Industry Structure

Among these, diamond has a lions share in Indian Gems and Jewellery

exports and contributes approximately 60-70% of the revenue of the Gems and

Jewellery sector. Diamond industry has been growing at 15-17% annually since

last two decades. The following diagram shows the growth rate of diamond

industry since the year 1975.

Figure 11: Gems and Jewellery share (%) in Indias total exports

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Diamond trade constitutes an important industry for the Indian economy. It

is one of the fastest growing industries and a leading earner of foreign exchange

for India. As stated earlier, the diamond industry in India is mostly concentrated

in the unorganized sector and employs around 2 million workers. An important

feature of this industry is that it contributes a large share to Indias total exports as

well as to the countrys imports (averaging over 9 percent of total imports since

1997 and 15% of total exports). As a commodity, it has the (single) highest share

in Indian merchandise exports and is therefore, one of the most significant

industries for India. Rough and uncut diamonds are imported and processed in

India and finally exported in the form of diamond jewellery for final consumption.

It is this feature that makes the industry highly import-intensive in nature.

The diamond segment contributes a major share of nearly 60-70 percent of

the total (gems and jewellery) export and thus, the remainder of the analysis

focuses on the performance of Indian diamond exports. However, the latters

share has declined since 2008, in part, due to the economic meltdown which

reduced the import demand from USA and other trading partners of India.

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4.2 Diamond Trade of India vis--vis Global Diamond Trade:

India is the world's largest diamond cutting and polishing centre in theworld with the country processing 11 out of 12 diamonds sold in the global

market. Even though diamond processing takes place in about 30 countries across

the globe, a big chunk of concentration lies in five countries of India, Belgium,

South Africa, Israel and US.

A unique feature of diamonds is that, unlike gold, silver or platinum, they

do not have an internationally set standard price. The price is determined based of

physical attributes such as cut, colour, clarity and carat (weight). Like other forms

of (valuable) jewellery, diamonds are a luxury item and consequently have a

highly elastic demand in the market. In this industry, India has a comparative

advantage in labour-intensive activities like gem cutting and polishing. Therefore,

Indian companies operate at a beneficial level in the value chain where they

import rough diamonds, which are processed and exported for final consumption

as diamond jewellery. India accounts for approximately 60% of the global

polished diamonds in value terms, 80% in karatage and 90% in pieces. China and

Thailand are also catching up as centres for diamond cutting and polishing.

The diamond processing industry is largely dependent on supply of rough

diamonds. Australia, Botswana, Russia and South Africa are the major suppliers

of rough diamonds. The production of rough diamonds from mines is presently

dominated by De Beers (DTC), which is the largest diamond miner in the world.

Diamond exports from India recovered substantially with the onset of a

gradual global economic recovery, although a part of the increase was attributed

to weaker Indian Rupee. The favourable exchange rate, coupled with higher

demand and government incentives, has led to improved liquidity for most

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diamond processors and jewellery makers.

(A) Indias position in the export of diamonds in the global market:Indias position in the world market for gems and jewellery exports can be

seen in the Figure 12. The figure reveals that India has always been an important

source market for gems and jewellery and its significance has grown considerably

during last two decades. Indian exports performed particularly well in 2009 and

India became a leading exporter of gems and jewellery, with a market share

exceeding 23 percent.

Figure 12: Indias Share in World exports of Gems and Jewellery

Indias diamond exports, which form the major share of gems and

jewellery exports, too have an important share in the global diamond exports. It

has grown from 13.4 percent in 2000, to 20.1 percent in 2009. Indias main

competitors in the diamond industry are Israel and Belgium, and both thesecountries have a technological advantage in the processing of raw diamonds.

India has traditionally specialized in the processing of small diamonds, whereas

Belgium and Israel have had the advanced technology to work with larger

diamonds. Since the market for small-sized diamonds is relatively small, Indias

share in the world market has usually been lower than that of Israel and Belgium.

(B) Major Exporters of Diamonds and their Share in World Trade:

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Table 2 reveals the change in market share since 2000. It is seen that

Indias market share remained unchanged and well below Israel and Belgiums

share between 2000 and 2005. In 2009, however, Indias share rose considerably

above that of Belgium and Israel, which could partly be due to the stronger impact

of the sub-prime crisis of 2008 on the demand for large sized diamonds, which

resulted in a decline in market share for Israel and Belgium.

Table 2: Major exporters of Diamonds and their share in world exports (%)

4.2Trends in Export of Diamonds from India:

The structure of the global diamond industry can be explained with the

help of the 3.1 diagram. India is the main centre for processing of diamonds, i.e.,

making cut and polished diamonds from roughs. India processes 100mn carats of

rough diamonds against the worlds total output of 117mn carats of rough

diamonds, and the largest diamond polishing centre. USA on the other hand is the

largest market for loose polished diamonds and diamond jewellery.

Australia India USA

(Largest Diamond Producer) (Biggest Diamond Processor) (Largest Diamond Market)

Fig 3.1 Global Diamond Industry Structure

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The availability of low-cost labour is one of the main factors behind India's

dominance in export of cut and polished diamonds. India spends US$10 per carat

on the polishing and cutting of diamonds, against China's US$17 and South

Africa's US$40 to US$60, Belgium, Israel and Russia US$60-80 while United

States approximately US$ 100. The vast resources of manpower combined with

"the skill of the Indian artisan" and the "relentless efforts of Indian entrepreneurs

who took on the daunting task of setting up this industry" are additional

contributors to India's success.

Table 3.2

Estimated Cost of Cutting and Polishing, $ per carat

Country Estimated Cost of Cutting and Polishing

Diamond, $ per Carat

India ~10

China ~15-20

South Africa ~40-60

Belgium, Israel and Russia ~60-80

United States ~100+

Source: Dogrib Diamond Report; expert interviews

Currently 700,000 to 800,000 diamond cutters work in India, bolstered in

part by government subsidies. Before the recent recession, Indian craftspeople cut

14 out of 15 diamonds worldwide, mostly in the states of Maharashtra and

Gujarat. About 30,000 to 50,000 cutters operate in China and Thailand, and the

numbers there are rising. Guangzhou in China is now one of the worlds largest

global cutting centres. Sri Lanka is also making significant inroads.

In addition to export of cut and polished diamonds, India also exports

rough diamonds. But the proportion of export of rough diamonds in total export of

gems and jewellery sector is very low.

(A) Trends in Exports of Cut and Polished Diamonds vis-a-vis Gems

and Jewellery Exports and Total Merchandise Exports from India:

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Table No. 1.4

Trends in Export of Cut and Polished Diamonds vis-a-vis Gems and Jewellery

Exports and Total Merchandise Exports from India

Year Cut &

Polished

Diamonds(US$ in Million)

% of Export

of Gems and

Jewellery

Total Export

of Gems &

Jewellery

Sector*(US$ in Million)

% of Total

Merchandise

Exports

Total

Merchandise

Exports

2001-2002 5982 79.03% 7569 13.65% 43827

2002-2003 7105 77.55% 9162 13.48% 52719

2003-2004 8603 71.03% 12112 13.48% 63843

2004-2005 11163 71.29% 15658 13.36% 83536

2005-2006 11831 70.84% 16701 11.48% 103091

2006-2007 10910 63.58% 17159 8.63% 126414

2007-2008 14205 67.90% 20921 8.71% 163132

2008-2009 14804 59.47% 24894 8.00% 1852952009-2010 18244 61.96% 29442 10.21% 178751

2010-2011 28221 65.56% 43048 11.24% 251136

2011-2012 (P) 23330 49.68% 46957 7.66% 304624

*Includes export of all the constituents of gems and jewellery sector.

The table no. 1.4 and figure no. 1.4 and figure no. 1.5 show the export of cut and

polished diamonds as a percetange of total exports from gems and jewellery sector

and total merchandise exports from India from 2001-02 to 2011-2012. It can be

seen in the above table that export of cut and polished diamonds is one of the

major constituents of the gems and jewellery sector. In the year 2001-02, the

export of cut and polished diamonds constituted almost 80% of the total exports

from gems and jewellery sector. By 2005-2006, this proportion fell down to 70%

due to increase in the export of gold jewellery and coloured gem stones. Between

2006-2007 and 2010-2011, the share of cut and polished diamonds in the total

gems and jewellery sector export fluctuated between 60% to 70%. In the FY

2011-2012, the share of cut and polished diamonds fell down to 50%.

The export of cut and polished diamonds constituted almost 14% of the total

merchandise exports from India in the year 2001-2002. This has fallen to merely

7.66% of the total merchandise exports of India in the year 2011-2012.

It is interesting to note that during the last decade the export of gems and

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jewellery sector as a whole has increased at an average rate of 15% p.a. However,

the proportion of cut and polished diamonds in the export basket of gems and

jewellery sector has declined during the same period. There are several factor

responsible for this fall, prominent among them is the increase in the share of gold

jewellery and bottlenecks in the supply of rough diamonds from mines. The share

of export of gold jewellery in total exports of gems and jewellery sector has

increased from 15% in the year 2001-2002 to approximately 35% of the total

exports from gems and jewellery sector in the year 2011-2012.

Figure No. 1.4 Export of Cut and Polished Diamonds as a % of Total Exports of

Gems and Jewellery Sector

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Figure No. 1.5 Export of Cut and Polished Diamonds as a % of Total Merchandise

Export of India

Observation: It can be concluded from the above analysis that cut and polished

diamonds have contributed almost 80% of the exports from gems and jewellery sector at

the turn of this century. However, this proportion has gradually come down to 50% of

the exports of gems and jewellery sector mainly due to increase in the export of goldjewellery, which constituted only 15% of the total exports from gems and jewellery

sector in the year 2001-2002 and increased to 35% of the exports from gems and

jewellery sector at the end of 2011-2012.

(B) Analysis of the Average Annual Growth Rate of Export of Cut and

Polished Diamonds from India during 2001-02 to 2011-2012:

Table No. 1.5

Year Export of

Cut &

Polished

Diamonds(US$ in

Million)

Average

Annual

Growth

Rate over

Previous

Year

Exports of

Gems and

Jewellery

Sector*(US$ inMillion)

Average

Annual

Growth

Rate over

Previous

Year

Total

Merchandis

e Export(US$ inMillion)

Average

Annual

Growth

Rate over

Previous

Year

2001-2002 5982 - 7306 - 43827 -

2002-2003 7105 18.77% 9030 23.59 52719 20.29

2003-2004 8603 21.08% 10573 16.56 63843 21.10

2004-2005 11163 29.75% 13762 16.47 83536 30.85

2005-2006 11831 5.98% 15529 15.06 103091 23.41

2006-2007 10910 - 7.79% 15983 2.93 126414 22.63

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2007-2008 14205 30.20% 19692 23.20 163132 29.05

2008-2009 14804 3.90% 28411 44.28 185295 13.59

2009-2010 18244 23.24% 29081 2.36 178751 3.53

2010-2011 28221 54.69% 40508 39.30 251136 40.50

2011-2012 (P) 23330 - 17.33% 46957 15.92 304624 21.30

*Includes export of all the constituents of gems and jewellery sector.

The above table analyses the average annual growth rate of exports of cut and

polished diamonds vis-a-vis the average annual growth rate of exports of gems

and jewellery and total merchandise exports from India during 2001-2002 to

2011-2012.

It can be seen that the export of cut and polished diamonds has increased steadily

during the last decade at an average annual rate of 20% p.a. with few exceptions.

During 2002-2003 to 2004-2005, the export of cut and polished diamonds

increased at an annual rate of almost 20-25% p.a. However, during 2005-2006 this

growth slumped to mere 5.98% which turned into negative at 7.79% during

2006-2007. There are several reasons for this slump, the prominent among them is

the rise in the price of rough diamonds and slackening demand from the US and

European countries. The export of cut and polished diamonds revived during

2007-2008 to jump by over 30% over its previous year. In the year 2008-2009, it

again turned sluggish to increase by mere 3.9% over its previous year. This

sluggishness was marked by rapid increase in the export of gold jewellery. In the

year 2009-2010 and 2010-2011, the export of cut and polished diamonds revived

to rise annually by 23.24% and 54.69% respectively. The provisional figures

announced for the financial year 2011-2012 showed a fall of 17.33% in the annual

growth of export of cut and polished diamonds from India.

(C) Correlation between Average Annual Growth in the Exports of

Cut and Polished Diamonds vis-a-vis Total Exports of Gems and

Jewellery Sector from India: (2001-2012)

X = Average Annual growth Rate of Export of Cut and Polished Diamonds

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Y = Average Annual growth Rate of Total Exports of Gems and Jewellery Sector

Table No. 1.3

Correlation between Average Annual Growth in the Exports of Cut and Polished

Diamonds vis-a-vis Total Exports of gems and Jewellery Sector from India (2001-

2012)

Year % Growth over

Previous F.Y.*

(X)

% Growth over

Previous F.Y.*

(Y)

XY X2 Y2

2002-2003 19 24 456 361 576

2003-2004 21 17 357 441 289

2004-2005 30 17 510 900 289

2005-2006 6 15 90 36 225

2006-2007 8 3 24 64 92007-2008 30 23 690 900 529

2008-2009 4 44 176 16 1936

2009-2010 23 2 46 529 4

2010-2011 55 39 2145 3025 1521

2011-2012 (P) 17 16 272 289 256

Total 163 200 4174 6561 5634




N

YY

N

XX

N

YXXY

22

22 )()(

=

10

)200(5634

10

)163(6561

10

2001634174

22

X

=4228.404828.62

32604174

X

=7297.2525

914

= 0.3619


correlation between average annual growth rate of export of cut and polished

34


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diamond and total exports of gems and jewellery sector from India.

Observation: It is observed in the above analysis that the average annual growth

rate of export of cut and polished diamonds from India is independent of the

average annual growth rate of total exports from gems and jewellery sector. This

is clearly reflected in the years of the US and the European financial crisis. There

are several factors that contribute to this independence:

(1) Gems and jewellery trade consists of a number of sub-sectors which are

independent of each others.

(2) Export of processed diamonds depends mainly on the supply of rough

diamonds which are sourced internationally.

(3) Processing of diamond also depends upon demand from the US and

European nations, which are facing a tough time.

(4) The Foreign Trade Policy of the Indian government and that of other

countries also affect the demand and supply conditions.

(D) Trends in Exports of Rough Diamonds vis-a-vis Total Exports of

Gems and Jewellery Sector from India (2001-02 to 2010-11):

Table No. 1.5

Trends in Export of Rough Diamonds vis-a-vis Total Exports of Gems and

Jewellery Sector from India

Year Rough

Diamonds

(US$ in Million)

Exports of

G&J Sector

(US$ in Million)

% Share of

Rough

Diamonds in

Total Exports

of G&J sector

Average

Annual

Growth Rate

over Previous

Year

2001-2002 142 7569 1.88% -

2002-2003 241 9162 2.63% 69.72%

2003-2004 533 12112 4.40% 121.16%

2004-2005 357 15658 2.28% 33.02%

2005-2006 566 16701 3.39% 58.54%

2006-2007 565 17159 3.29% 0.18%

2007-2008 567 20921 2.71% 0.35%

2008-2009 776 24894 3.12% 36.86%

2009-2010 744 29442 2.53% 4.12%

2010-2011 1137 43048 2.64% 52.82%

2011-2012 (P) 1773 46957 3.78% 55.94%

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Rough diamonds are mined in more than 20 different countries including

India. Indias annual production is negligible at around 19000 carats. The share of

rough diamonds in total export basket of gems and jewellery sector is negligible.

The export of rough diamonds stood at US$ 142 million in the year 2001-2002

which constituted 1.88% of the total export of gems and jewellery sector. This

proportion increased to 2.63% and 4.40% in the year 2002-2003 and 2003-2004

respectively. However, in the year 2004-2005, the export of rough diamonds from

India again fell to 2.28% of the export of gems and jewellery sector registering a

negative growth of 33.02% over its previous year. Since then, the share of

export of rough diamonds in total exports of gems and jewellery sector has

remained between 2% to 4% of the total exports of gems and jewellery sector.

The average annual growth rate of export of rough diamonds from India showed a

spectacular rise of 52.82% and 55.94% during the year 2010-2011 and 2011-2012

respectively.

4.3Trends in Import of Rough Diamonds in India:

The Indian diamond processing industry took roots in the 1960s. As

compared with the traditional diamond cutting and polishing centres of Belgium,

India, with its low labour cost, opened up new possibilities for the world diamond

industry by making diamonds affordable for new, less affluent buyers. As a result,

India captured an increased proportion of this market, and at present, India is the

worlds leading diamond cutting and polishing centre.

Though India plays a dominant role in the Gems and Jewellery industry in

terms of processing and consumption, its role in the mining of gold and diamond

is minimal. India imports gold and rough diamonds along with other precious

metals. The African continent dominates the mining space of diamonds whereas

India is the dominant player in diamond processing. Thus, Indian mainly imports

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raw and rough diamonds from other countries, mainly from African countries,

processes them into cut and polished diamonds and exports them to several other

countries of the world.

It can be seen in the following table that India imported 8.2% of the total

rough diamonds supply in the world in the year 2000. This share rose to 11.8% in

the year 2005, putting India at the second place next to the USA in terms of the

importer of rough diamonds. By 2009, India grabbed 16.8% of the market share of

total rough diamond supply in the world, bagging first position in terms of

importer of rough diamonds.

Table 4

Main World Importers of Diamonds

Reproduced from an ICRA Report on the Indian Gems and Jewellery Industry (October 2010), p. 30

(A) Trends in Import of Rough Diamonds by India:

Table No. 1.5

Trends in Import of Rough Diamond by India from 2001-2002 to 2011-2012

Year Rough

Diamonds

(US$ in Million)

Average

Annual

Growth Rate

over Previous

Year

2001-2002 4,207 -

2002-2003 6,273 49.11%

2003-2004 7,137 13.77%

2004-2005 7,648 7.16%

2005-2006 8,698 13.73%

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2006-2007 8,767 0.79%

2007-2008 9,797 11.75%

2008-2009 7,960 18.75%

2009-2010 9,048 13.67%

2010-2011 11,994 32.56%

2011-2012 15132 26.16%

It can be seen in the above table that the import of rough diamonds has

gradually increased in India during last decade from mere US$ 4207 million in the

year 2001-2002 to US$ 15132 million in the year 2011-2012. Indian mainly

imports rough diamonds for processing and re-exporting. The year 2002-2003

showed a sudden jump in import of rough diamonds by almost 49.11% over its

previous year. There after it grew at an average of about 10% until 2007-2008. In

the year 2008-2009, there was a negative growth in the import of rough diamonds

in India. The import of rough diamonds during 2008-2009 fell by 18.75% over its

previous year. The main reason for this fall was the ban put by the GJEPC on

import of rough diamonds in the country.

The organized Indian diamond industry decided to stop all rough diamond

imports to the country for a month starting November 25. The cited reason was to

send a signal to the banks that the industry will not increase indebtedness. The

economic crisis followed by crippling demand forced GJEPC to urge for a 30 day

ban. The ban was in interest of the Indian diamond industry to help stabilize

prices by reducing oversupply of diamonds and shielding companies from

borrowing money to purchase diamonds. The following is the full text of the

GJEPC announcement:

The Global financial situation is causing a strain on the players throughout

the diamond value chain. In order to protect the interest of the industry at

large the Indian Diamond Industry has decided to curtail import of rough

diamonds. This will also send signal to the banking system that the

diamond industry will not increase its indebtedness at the time when our

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downstream colleagues continue to meet consumer demand a demand

heightened by the inherent value which consumers attach to our product.

Therefore, the Gems & Jewellery Export Promotion Council has asked its

members to cease the imports of rough diamonds for a month from

November 25. Such import stoppage will help the industry face the

challenge that has arisen out of turmoil in the global financial market. 3

Mr. Vasant Mehta, Chairman, GJEPC, observed "Our members have

sufficient rough diamonds in stock to minimize the impact on our labour force".

Mr. Mehta added "Our move will basically cause fewer rough to enter the

diamond pipeline and the producer companies will thus indirectly share in the

financing burden and contribute to a faster restoration of normalcy in an otherwise

healthy business".

(B) Value Addition and Foreign Exchange Generation by Diamond

Processing Industry in India:

Table No. 1.6


Year Import of

Rough

Diamonds

(US$ in Million)

Export of

Cut &

Polished

Diamonds(US$ in Million)

AAGR of

Imports over

Previous Year

AAGR of

Exports over

Previous Year

Value

Addition

(US$ in Million)

2001-2002 4,207 5982 - - 1775

2002-2003 6,273 7105 49.11% 18.77% 832

2003-2004 7,137 8603 13.77% 21.08% 1466

2004-2005 7,648 11163 7.16% 29.75% 35152005-2006 8,698 11831 13.73% 5.98% 3133

2006-2007 8,767 10910 0.79% - 7.79% 2143

2007-2008 9,797 14205 11.75% 30.20% 4408

2008-2009 7,960 14804 18.75% 3.90% 6844

2009-2010 9,048 18244 13.67% 23.24% 9196

2010-2011 11,994 28221 32.56% 54.69% 16227

2011-2012 15132 23330 26.16% - 17.33% 8198

AAGR: Annual Average Growth Rate.

The Gems and Jewellery industry collectively contributed only 0.2% of the

3 Official web-site of GJEPC, accessed on 21st March 2013.

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total export of the country in the year 1960-61. This contribution increased to

16.2% of the total exports in the year 1990-91 and further to 16.6% of total

exports in the year 2000-2001. The contribution of gems and jewellery sector to

the total exports of the economy stood at 14.9% in the year 2010-2011. 4 During

last four decades, the gems and jewellery sector has become one of the most

important sector of the economy, in terms of employment generation and foreign

exchange earner.

Diamond processing industry is one of the most important segments of the

gems and jewellery sector. In the year 2001-2002, export of cut and polished

diamonds contributed almost 80% of the export of gems and jewellery sector.

This proportion gradually came down to 65% in the year 2010-2011. The reason

being increasing demand for diamond studded gold jewellery from India. Thus,

there has been increasing trends in favour of gold jewellery rather than cut and

polished diamonds. Although the share of cut and polished diamonds in total

exports of the country fell down from 80% to mere 50% during the last decade, in

absolute terms it has increased. The exports from gems and jewellery sector could

sustain even during the phases of recession in the world economies.

In the year 2001-2002, India imported rough diamonds worth US$ 4207

million and exported cut and polished diamonds worth US$ 5982, thus making a

contribution to US$ 1175 to the foreign exchange account of the country. It

should be kept in mind that Indian processors do not necessarily process rough

diamonds in the year in which they buy. Generally, they buy rough diamonds as

and when site holders are allotted quota and rough diamonds are available at

cheaper rate. Liquidity and holding capacity are the other factors that affect the

purchase of rough diamonds by processors. In the following year, i.e. 2002-2003,

import of rough diamonds jumped up by 50% over its previous year while exports

remained sluggish registering a growth of 18.77%, pulling down the net value

4 Government of India, Economic Survey of India, 1960-61, 1990-91, 2000-2001 and 2010-2011.

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additions to mere US$ 832 million. Since then there has been rapid increase in the

foreign exchange contribution of the diamond sector.

The net value addition by diamond processing industry stood at US$ 1466

million in the year 2003-2004. It further increased to US$ 3515 million in the year

2004-2005. The reason for this sudden increase in value addition by diamond

industry was fall in the average annual growth rate of imports (from 13.77% to

7.16%) and increase in exports (from 21.08% to 29.75%) over previous year

(2003-2004). In the following year, rise in imports and fall in exports pushed

down this figure to US$ 3133 million. In the year 2006-2007, the average annual

growth rate of exports of cut and polished diamonds turned negative ( 7.79%),

resulting in further fall in value addition to US$ 2143 million.

In the year 2008, the GJEPC put a ban on import of rough diamonds in

India on the ground that India had enough stock of rough diamonds and this

decision of GJEPC proved boon to diamond industry pushing net value addition

by diamond processing industry to US$ 4408 million in the year 2007-2008. IN

2008-2009, the import of rough diamonds fell down by 18.75%, resulting in

further rise in value addition to US$ 6844 million. The net value addition by the

diamond industry increased to US$ 9196 million in the year 2009-2010 and

further to US$ 16227 million in the year 2010-2011 due to the hopes of revival of

the US economy and steps taken by the European economies to resolve sub-prime

debt crisis in their economies.

In the year 2011-2012, the export of cut and polished diamonds fell down

by 17.33% over its previous year while imports increased by 26.15%. This led to

drastic fall in the value addition by 50% from US$ 16227 million in the year

2010-2011 to US$ 8198 million in the year 2011-2012.

A number of factors are posing challenge to Indian diamond industry.

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Some of them are threat from upcoming processing centres such as China and Sri

Lanka, rising prices of rough diamonds shrinking margins, domestic competition,

falling demand for diamonds in the world market and so on. However, the Indian

diamonds industry is proactive and is gearing up to tackle these issues.

Companies have started to look at diamond branding and retailing to increase

margins. Jewellery retailing a $12 bn market is not new in India and is mainly

dominated by the unorganized sector. Organized retailing and branded jewellery

are two recent trends that are catching up. Even the Indian government is looking

for new suppliers for the supply of rough diamonds. Indian diamond processing

units have started installing new machines and latest technology to process

diamonds. These factors will collectively contribute to further growth and

development of diamond industry.

(C) Correlation between the Average Annual Growth Rate of Import of

Rough Diamonds and Export of Cut and Polished Diamonds from

India:

X = Average Annual growth Rate of Import of Rough Diamonds

Y = Average Annual growth Rate of Exports of Cut and Polished Diamonds

Table No. 1.7

Correlation between the Average Annual Growth Rate of Import of Rough

Diamonds and Export of Cut and Polished Diamonds from India (2001-2002 to

2011-2012)

Table No. 1.6


Year AAGR of

Imports over

Previous

Year*

AAGR of

Exports over

Previous

Year*

XY X2 Y2

2002-2003 49 19 931 2401 361

2003-2004 14 21 294 196 441

2004-2005 7 30 210 49 900

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2005-2006 14 6 84 196 36

2006-2007 1 8 8 1 64

2007-2008 12 30 360 144 900

2008-2009 19 4 76 361 16

2009-2010 14 23 322 196 529

2010-2011 33 55 1815 1089 3025

2011-2012 26 17 442 676 289

151 163 3490 5309 6561

AAGR: Annual Average Growth Rate.




N

YY

N

XX

N

YX

XY

22

22 )()(

=

10

)163(6561

10

)151(5309

10

1631513490

22

X

=4828.620354.55

3.24613490

X

=7659.3438

7.1028

= 0.2991


correlation between average annual growth rate of import of rough diamonds and

average annual growth rate of export of cut and polished diamonds.

Observation: Indian diamond industry, being raw material oriented industry,

purely depends on supply of rough diamonds for processing. Indian diamond

mines have almost exhausted and thus, Indian diamond industry is purely

dependent on foreign sources for the supply of raw material. Again domestic

market for processed diamonds in India is not much developed. Thus, most of the

imported rough diamonds in India are processed and exported back. However, the

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result of correlation analysis shows a weak correlation between the average

annual growth rate of import of rough diamonds and average annual growth rate

of export of cut and polished diamonds.

The only reason for this is that the export of cut and polished diamonds in a

particular year does not depend on the import of rough diamonds of the same

year. Indian diamond traders stock diamonds as and when they get them at

favourable terms and export them as and when demand for them arises in the

world market. This balancing helps them to earn huge profits.

4.4 Challenges for Indian Diamond Industry:

It is said that higher you are more are the challenges. It is certainly true in the case

of Indian diamond industry. There are several factors, both local as well as global,

which pose a challenge to Indian diamond industry. Some of these factors are:

(1) Uncertainty in Supply of Raw Material: The diamond pipeline has been

witnessing a change since the early years of this decade. De Beers

monopolistic hold on the supply chain was loosening and suddenly, a host

of middlemen had access to an increasing share of rough distribution

straight from mines all over the world. Since then, De Beers rough

distribution arm, Diamond Trading Companys (DTC), share of rough

diamonds sold has declined to about 40-45% from about 85%.

In a bid to disrupt De Beers monopoly in India, Russian state-owned

diamond-giant Alrosa has struck a deal with three major Indian diamond

processors. Diamond India, Rosy Blue, and Ratilal Becharlal & Sons have

announced a USD 490 million deal with Alrosa to supply rough diamonds

over the next 3 years. Under the deal the mine will directly supply raw

material to the local diamond companies, who till recently had to import

raw material from Belgium and Israel. This agreement will lead to cost

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savings of at least 3-4% for the companies.

(2) Unorganised Market: The Indian gems and jewellery market is

dominated by the unorganized sector. However, the trend is set to change

in near future with the branded jewellery market growing at an expected

CAGR of more than 41% over the next four years. According to market

reports, with its consumption pegged at nearly 20%, India remains worlds

largest gold consumer and this share is expected to grow further. Going

ahead, the organized jewellery sector is forecast to account for a significant

share in the country's total jewellery market.

Additionally, growing importance of India in global gems and jewellery

market has opened a lot of opportunities for exports. The country is fast

becoming a major export destination of gems and jewellery to various

developed and developing countries, including the US, the UAE, Hong

Kong and Belgium. Despite recession, the Indian gems and jewellery

exports sustained the positive momentum.

According to analysts the industry needs to take initiatives like setting up

design centres with the aim to train their employees to compete in the

international markets. Additionally, the Indian gems and jewellery industry

will have to set standards and certification.

(3) Rising Gold Prices: Gold prices have doubled over the past three years.

Such a sharp rise is usually associated with risky investment assets such as

equities. The recent rise in gold prices may not be the steepest like in the

1980s. During this decade itself, gold prices have risen almost five-fold.

This has affected the overall cost of jewellery for the end consumer,

thereby reducing his purchasing power and demand. The sizzling gold

price is one of the reasons for drop in jewellery sales.

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(4) Competition from China: China is rapidly gaining ground in the diamond

trade, unsettling many Indian diamond traders. The Chinese government

has struck multi-billion dollar deals with various African countries, to build

their infrastructure in return for resources including rough diamonds. With

growing domestic demand, China is building its diamond cutting and

polishing infrastructure. In exchange for medicines, oils, industrial metals

and delivery of infrastructure projects, China is importing rough diamonds

from Angola, the Democratic Republic of Congo and other African

countries.

However, India is comfortably placed against its competitors in terms of

cost of production. India boasts of one of the lowest per carat diamond cutting and

polishing costs (at around USD 10) thereby leading to comparatively low cost

jewellery, and hence amplifying the overall consumption.

Additionally, growing importance of India in the global gems and

jewellery market has opened a lot of opportunities for exports. The country is

rapidly becoming a major exporter of gems and jewellery to various developed

and developing countries, including the US, the UAE, Hong Kong and Belgium.

The Indian gems and jewellery exports sustained its positive momentum even in

the times of recession.

Currently the Indian gems and jewellery market remains highly fragmented, but is

rapidly transforming into an organized sector. Additionally, apart from diamond

jewellery, gold consumption is also on a rise and India is expected to capture a

dominant share in global gold consumption in 2013.

Going ahead, the organized jewellery sector is expected to account for a

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significant share in country's total jewellery market.

4.5Direction of Export of Cut and Polished Diamonds fromIndia to Major Markets:

Diamond processing takes place in about 30 countries but it is mainly

concentrated in five countries India, Belgium, S. Africa, Israel and the

U.S. India accounts for approximately 60% of the global polished diamonds in

value terms, 80% in karatage and 90% in pieces. China and Thailand are catching

up as centres for diamond cutting and polishing. The diamond processing industry

is largely dependent on supply of rough diamonds. Australia, Botswana, Russia

and South Africa are the major suppliers of rough diamonds. The production of

rough diamonds from mines is presently dominated by De Beers (DTC), which is

the largest diamond miner in the World. Diamond cutting is a great skill. The

natural form of a diamond would determine the shape of the final polished

diamond. Diamonds are usually distributed to one of the main cutting and trading

centres where experts cut and polish rough diamonds into various shapes.Polishing follows cutting before diamonds are again classified based on various

parameters. These are then sold to wholesalers or diamond jewellery

manufacturers. Indias dominance in the cutting and polishing segment can

be attributed to experienced craftsmanship and relatively low cost Indian labour.

Diamond processing remains highly fragmented in India with over 100,000 units.

There may be hardly any country where an unorganised economic activity makes

such a huge contribution to the trade, employment as well as foreign exchange

earnings of the country.

India mainly exports cut and polished diamonds to the United Arab

Emirates (UAE), Hong Kong, the United States of America (USA), Belgium,

Israel, Singapore, Thailand, the United Kingdom (UK), Japan and Australia. Lets

analyze trends in export of cut and polished diamonds from India to these

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countries:

(A) Trends in Export of Cut and Polished Diamonds to the UAE:

Export of Cut and Polished Diamonds to the UAE from India

Year US $ In

Million*

Total Exports

$ In Million

% Share in Total

Exports

2001-2002 344 5982

2002-2003 425 7105

2003-2004 799 8603

2004-2005 1848 11163

2005-2006 985 11831

2006-2007 1145 10910

2007-2008 1914 14205

2008-2009 3357 14804

2009-2010 6167 182442010-2011 12432 28221

2011-2012 6016 23330

*Rounded off to the nearest unit.

(B) Trends in Export of Cut and Polished Diamonds to Hong Kong:

Export of Cut and Polished Diamonds to Hong Kong from India

Year US $ In

Million

Total Exports

$ In Million

% Share in Total

Exports2001-2002 1,600 5982

2002-2003 1,916 7105

2003-2004 2,437 8603

2004-2005 3,042 11163

2005-2006 3,432 11831

2006-2007 3439 10910

2007-2008 4881 14205

2008-2009 4784 14804

2009-2010 5745 18244

2010-2011 7893 28221

2011-2012 8177 23330*Rounded off to the nearest unit.

(C) Trends in Export of Cut and Polished Diamonds to the USA:

Export of Cut and Polished Diamonds to the USA from India

Year US $ In

Million

Total Exports

$ In Million

% Share in Total

Exports

2001-2002 1,973 5982

2002-2003 2,259 7105

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2003-2004 2,554 8603

2004-2005 2,585 11163

2005-2006 2,858 11831

2006-2007 2899 10910

2007-2008 3294 142052008-2009 2793 14804

2009-2010 2634 18244

2010-2011 3224 28221


(D) Trends in Export of Cut and Polished Diamonds to Belgium:

Export of Cut and Polished Diamonds to Belgium from India

Year US $ In

Million

Total Exports

$ In Million

% Share in Total

Exports

2001-2002 842 5982

2002-2003 931 7105

2003-2004 1,038 8603

2004-2005 1261 11163

2005-2006 1,350 11831

2006-2007 1359 10910

2007-2008 1730 14205

2008-2009 1321 14804

2009-2010 1,297 18244

2010-2011 1,683 28221

2011-2012 2058 23330


(E) Trends in Export of Cut and Polished Diamonds to Israel:

Export of Cut and Polished Diamonds to Israel from India

Year US $ In

Million

Total Exports

$ In Million

% Share in Total

Exports

2001-2002 264 5982

2002-2003 438 7105

2003-2004 576 8603

2004-2005 701 11163

2005-2006 770 11831

2006-2007 860 10910

2007-2008 1019 14205

2008-2009 745 14804

2009-2010 810 18244

2010-2011 1,109 28221

2011-2012 1385 23330


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(F) Trends in Export of Cut and Polished Diamonds to Thailand:

Export of Cut and Polished Diamonds to Thailand from IndiaYear US $ In

Million

Total Exports

$ In Million

% Share in Total

Exports

2001-2002 215 5982

2002-2003 207 7105

2003-2004 200 8603

2004-2005 263 11163

2005-2006 286 11831

2006-2007 303 10910

2007-2008 349 14205

2008-2009 282 14804

2009-2010 294 18244

2010-2011 379 28221

2011-2012 489 23330


(G) Trends in Export of Cut and Polished Diamonds to Japan:

Export of Cut and Polished Diamonds to Japan from India

Year US $ In

Million

Total Exports

$ In Million

% Share in Total

Exports

2001-2002 329 5982

2002-2003 354 7105

2003-2004 402 8603

2004-2005 469 11163

2005-2006 443 11831

2006-2007 383 10910

2007-2008 331 14205

2008-2009 249 14804

2009-2010 252 18244

2010-2011 276 28221


(H) Trends in Export of Cut and Polished Diamonds to Switzerland:

Export of Cut and Polished Diamonds to Switzerland from India

Year US $ In

Million

Total Exports

$ In Million

% Share in Total

Exports

2001-2002 119 5982

2002-2003 133 7105

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2003-2004 236 8603

2004-2005 163 11163

2005-2006 129 11831

2006-2007 130 10910

2007-2008 207 142052008-2009 162 14804

2009-2010 103 18244

3. trends and direction of diamond trade

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