RJ Market Watch
Diamond processors told to curtail import of rough stones for one month
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In a move aimed at protecting the interests of diamond processing industry, the apex body of the gem and jewellery industry has put forth a proposal to curtail the import of rough diamonds till June 15. This will help proessors manage the current lockdown-induced crisis banking sector’s reluctance to finance the sector.
Rough diamonds worth over $1 billion are imported every month on average, and a month’s restraint will allow processing units to their pare inventories and tide over the current situation at least partially. These units are also under severe financial stress and aren’t in a position to restart despite the government’s go-ahead. Their keeping theh shutters down will render lakhs of employees jobless.
As a solution and to protect the interests of the industry during this crisis, it was suggested by the Gem and Jewellery Export Promotion Council (GJEPC) that individual members consider the option of curtailing imports of rough diamonds from May 15 at least for the next 30 days.
India has a monopoly in cutting and polishing diamonds, with 14 out of 15 stones in the world being processed here. However, the industry is now seeking to pare domestic inventories while increased stock of rough diamonds globally due to India’s absence has created a glut. This, in turn, has led to and lower prices.
Recently several companies that get diamonds processed and export the polished stones, made some representations to the GJEPC. The Council responded to their call and also discussed possible steps to strengthen the Indian diamond industry.
The GJEPC said, “Such a curtailment of imports will help the industry face the challenges arising out of the drop in demand in the global gems and jewellery market.” However, it left the decision to individual importers.
The council added, “This one move will send a signal to the banking system that the diamond industry will not increase its indebtedness at a time when our downstream colleagues continue to meet consumer demand. This will reassure bankers and will prompt them not to reduce credit exposure to the industry. The Indian industry’s total indebtedness to banks is not excessively high—it currently stands at around $9.5 billion. The industry has honoured a major portion of its debts to the banks, and if the diamond sector tides over the next three months, the situation should be under control. It is expected that demand will be restored by 2021.”
According to the council, another aspect of the move to curtail import is that, “it will allow fewer rough diamonds to enter the pipeline and the producer companies will face lesser strain and indirectly share in the financing burden, thus contributing to a faster restoration of normalcy in an otherwise healthy business.”
The GJEPC will review the situation along with all other trade bodies in the second week of June to suggest a further course of action.
Colin Shah, vice chairman, GJEPC, said, “This industry has come out of every crisis, though this time it may take longer to find the new normal, which could be about 20 per cent below the pre-corona level in value terms.”
Just before the lockdown, the industry saw a sharp fall in FY20 exports due to the global slowdown. The lockdown was announced when banks were to review financial limits for FY21 and the industry was hoping for relief from them. However, the lockdown which followed unprecedented virus attack across globe, demanded stringent discipline by industry players and hence, curtailment rough diamond imports was proposed. This will also help improve industry financials and release of working capital stuck in inventories.
One of the exporter privy to the council’s meeting said, “Post Covid-19, there may be a short-term pent-up demand for diamond jewellery due to a large number of postponed weddings in the first half of the year. The industry will see a flare up of activity, but this will not translate into renewed replenishment from cutting and trading centres — certainly not immediately.”
Courtesy: Business Standard
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