The world’s largest manufacturing center faces some unfamiliar challenges amid apparent supply and labor shortages.
“We’ve seen it all before,” was the collective sigh that rang through Mumbai’s massive Bharat Diamond Bourse (BDB) when the pandemic initially broke out. “We got through other crises, and we’ll get through this one.”
The local diamond trade has a reputation for its distinct brand of optimism and cautious confidence, having thrived through the 2008 downturn and survived the many challenges in the decade since.
Some of those challenges have been uniquely Indian. There was the round-tripping debacle of 2012, which fueled a bubble in bank credit and diminished lenders’ trust in the trade. And there was the government’s demonetization program in 2016 — often referred to as Prime Minister Narendra Modi’s attack on cash. While demonetization was deemed necessary to counter the rampant money laundering in the country, it sucked liquidity from the local diamond trade, putting businesses — predominantly small ones — under additional pressure in an already difficult market.
When it comes to global crises, India’s diamond community has been able to work in a more unified way.
It accounts for an estimated 95% of global polished-diamond supply. That means that most rough production finds its way to the country, where diamond factories add value by cutting and polishing at scale. But it is also engaged in jewelry manufacturing and design and has a large domestic consumer market for diamond jewelry that ranks as the world’s third-largest, according to De Beers’ Diamond Insight Report.
When the market crashed in 2008, the trade collectively froze rough imports, which enabled it to focus on reducing existing inventory and freeing up liquidity. That action had a major impact on the rest of the industry, but it mostly helped India strengthen its position even further.
Yet in 2020, when the global market shut down as Covid-19 began to spread in late March, India’s dealers, manufacturers and jewelers — like those across the globe — were left dumbfounded. It soon became clear this was unlike anything they had previously experienced. Uncertainty and fear that the economic impact of the pandemic would surpass all other crises set in.
This time, Indian manufacturers didn’t need to take such deliberate collective actions, though they claim to have done so anyway. The market made the decision for them: Mining companies stopped selling rough, and trading froze. Besides, no one could travel to buy goods.
Surprising turn
Either way, the rough-market shutdown propped up the manufacturing sector the same way it did in 2008 — arguably more so. It helped reduce excess polished inventory, which had weighed heavily on the trade for years before. Just 16 months after the initial collapse, with the benefit of hindsight, Indian diamantaires see the downturn as a blessing in disguise.
Whereas before the pandemic, an oversupply of diamonds had burdened the market, today there is a scarcity of goods, notes Anshul Mehta, a partner at certified-diamond supplier Subir Diamonds.
“Demand is much higher than supply,” he observes, adding that the recovery has been driven by the strength of the US and Chinese retail markets, where the large jewelry chains are competing for limited production.
Among India’s biggest challenges is securing supply to keep up with demand in both the short and long term. That’s a surprising turn of events, considering the excess supply that constrained the market in the past decade, and bearing in mind that demand stagnated during that time.
Article from the Rapaport Magazine – September 2021.
