That's important, since India's diamond trade needs to diversify. India has been processing smaller and lower-quality diamonds compared to the larger ones polished and cut in other countries.
That said, the industry still has a big cost advantage over other diamond processing centers.
India's average $10-per-carat labor cost for cutting and polishing is much lower than the rest of the world. For instance, the same figure in China is $17 a carat, while it is $100 in Tel Aviv and $150 in Belgium. As a result, even as India accounts for 85% of the diamond processing business by volume, its share measured by value of the product 57%.
Over the years, India has been going up the value chain by making gold and diamond-encrusted jewelry for export. But while it could only use the smaller diamonds it processes, it often left a gap for larger ones to be filled in overseas, as importing polished diamonds was expensive given the import duties. Even so, in fiscal 2007, India imported $2 billion worth of cut and polished diamonds.
Signs of a U.S. Slowdown.
Today, the U.S. accounts for 32% of India's $17 billion in exports of cut and polished diamonds and jewelry. However, the U.S. market is showing signs of a pullback, given the slower economic growth this year. India's total diamond sales declined to $11 billion in the 2006 fiscal year from $12 billion in the 2005 fiscal year. "The economic slowdown in the U.S. is affecting Indian exports," says Raghav Narsalay, chief economist at consulting firm Economic Law Practice.
Kunal Shah of KBS Designs, a five-year-old diamond export house that sells 90% of its jewelry in the U.S., says sales have suffered as more budget-conscious U.S. consumers shift to smaller purchases.
"It is a challenge to make people in Middle America buy more," says Shah. "Even for gifts, we are competing with the iPods."Another challenge is that India's rapid economic advancement may mean the end of preferential treatment of its diamond exports. Five years ago, India was still considered a developing country and thus the U.S. waived a 6.5% import duty levied on jewelry imports.
"The duty benefits give us enormous leverage in a market where the trend is moving away from jewelry," says Vasant Mehta, senior partner at V Rameshchandra & Co, a diamond export house.
If there is no waiver, a major beneficiary will be China, which is in a position to benefit from India's export duty burden. China has been processing larger diamonds for jewelry making and importing rough diamonds worth about $1 billion a year.
Also, diamond mining countries in Africa are making efforts to process diamonds locally. This will affect India's share in the global sweepstakes, predicts a survey by consulting firm KPMG. By 2015, India's share of the processing pie is expected to shrink to 49% from 57% now, with China at 21.3% .
On top of that, South Africa is weighing a move to slap duties on the export of rough diamonds that would push up the material costs for Indian players. As a result, Indian diamond concerns are exploring opportunities in newer markets, including its own expanding middle class that is enjoying more spending power these days.
That said, the industry still has a big cost advantage over other diamond processing centers.
India's average $10-per-carat labor cost for cutting and polishing is much lower than the rest of the world. For instance, the same figure in China is $17 a carat, while it is $100 in Tel Aviv and $150 in Belgium. As a result, even as India accounts for 85% of the diamond processing business by volume, its share measured by value of the product 57%.
Over the years, India has been going up the value chain by making gold and diamond-encrusted jewelry for export. But while it could only use the smaller diamonds it processes, it often left a gap for larger ones to be filled in overseas, as importing polished diamonds was expensive given the import duties. Even so, in fiscal 2007, India imported $2 billion worth of cut and polished diamonds.
Signs of a U.S. Slowdown.
Today, the U.S. accounts for 32% of India's $17 billion in exports of cut and polished diamonds and jewelry. However, the U.S. market is showing signs of a pullback, given the slower economic growth this year. India's total diamond sales declined to $11 billion in the 2006 fiscal year from $12 billion in the 2005 fiscal year. "The economic slowdown in the U.S. is affecting Indian exports," says Raghav Narsalay, chief economist at consulting firm Economic Law Practice.
Kunal Shah of KBS Designs, a five-year-old diamond export house that sells 90% of its jewelry in the U.S., says sales have suffered as more budget-conscious U.S. consumers shift to smaller purchases.
"It is a challenge to make people in Middle America buy more," says Shah. "Even for gifts, we are competing with the iPods."Another challenge is that India's rapid economic advancement may mean the end of preferential treatment of its diamond exports. Five years ago, India was still considered a developing country and thus the U.S. waived a 6.5% import duty levied on jewelry imports.
"The duty benefits give us enormous leverage in a market where the trend is moving away from jewelry," says Vasant Mehta, senior partner at V Rameshchandra & Co, a diamond export house.
If there is no waiver, a major beneficiary will be China, which is in a position to benefit from India's export duty burden. China has been processing larger diamonds for jewelry making and importing rough diamonds worth about $1 billion a year.
Also, diamond mining countries in Africa are making efforts to process diamonds locally. This will affect India's share in the global sweepstakes, predicts a survey by consulting firm KPMG. By 2015, India's share of the processing pie is expected to shrink to 49% from 57% now, with China at 21.3% .
On top of that, South Africa is weighing a move to slap duties on the export of rough diamonds that would push up the material costs for Indian players. As a result, Indian diamond concerns are exploring opportunities in newer markets, including its own expanding middle class that is enjoying more spending power these days.