Indian diamond industry

Size and Growth rate of the Industry –

India is the world’s largest manufacturing centre of cut and polished diamonds for the last many
years, contributing 60% of the world’s supply in terms of value, 85% in terms of volume and 92% in
terms of pieces. The diamond jewellery Market had a growth rate of 4-6% in India in the last 5 years
backed by the continuing economic upturn, GDP growth and an increase in the disposable income
growth rate. The size of the industry is 6000 crores rupees.

Industry Trends-
 The diamond industry witnessed growth in 2016 continuing over a period of growth from 2012.
 The millennial — represents a compelling opportunity for the diamond industry. By the end of
2015, there were around 900 million people in China, India and the US with a combined gross
income of approximately $8 trillion. Millennial in the US prefer the use of the internet for jewellery
purchases; in India, millennial tend to prefer department stores. In India, the millennial are likely to
seek family advice before buying.
 Over the years, India, with its significantly lower labour costs and its fast and easy adaptation to
new technology, has eaten into the chunk of the Israeli business.
• The midstream of the diamond value chain is least profitable segment but opportunity lies in the
sheer market share that India currently has in C&P.

Major Government Initiatives-

 The industry’s sensitivity to the government policies remains moderate to high. Being a significant
foreign currency earner for the government, the CPD industry enjoys zero duty in terms of rough
procurement. Also, the Indian Government has supported the Indian Gems and Jewellery sector with
policies such as waiver of customs duties on the import of rough diamonds, permission for personal
carriage of jewellery through Hyderabad and Jaipur Airport as well, in addition to Delhi, Mumbai,
Kolkata, Chennai and Bangalore, establishment of Gems and Jewellery SEZs, etc.
 Government's proposal to extend Pradhan Mantri Kaushal Kendras to more than 600 districts
across the country, from the 60 districts at present, will help in creating skills for the gems and
jewellery sector as well. It will help in improving the quality and the market relevance of vocational
training to students and labours which will also benefit the jewellery industry.
 Govt. of India unveiled the Foreign Trade Policy (FTP) that will be in effect for the next five year
term, 2015 to 2020. It aims at supporting services and exports and would boost the "Make in India"
initiative. The policy provides the impetus to boost exports and offers a critical regulatory framework
for the proposed Special Notified Zone (SNZ).
 There is proposal to reduce income tax for smaller companies with annual turnover up to Rs.50
crore to 25 per cent. It will encourage medium to small jewellery exporters and manufacturers.

Opportunities for SME-

• Although as much as 85 per cent of total rough diamonds of the world are polished in the country,
only 15 per cent of them are imported directly, the rest being bought by middlemen. To counter this,
Bharat Diamond Bourse was established in Mumbai. It will ensure steady supply of rough diamonds.
Bharat Diamond Bourse will help the industry create a new face for the diamond industry in India.
• In the past 10 years (2006-16), Indian market has tripled itself to 22000 crore rupees. Rising
income and aspirations among Indians has led to increase in the demand for diamonds.
• Organized by the Gem and Jewellery Export Council (GJEPC), the second edition of Diamond
Detection Expo & Symposium (DDES) started in Surat. GJEPC will install detection machines at the
council's office, which traders can use free of cost. This will help the manufacturers and traders to
detect the fake diamonds present in the market.
• The Government of India has allowed 100 per cent foreign direct investment (FDI) in gems and
jewellery industry through the automatic route.
• In order to encourage more investments in the sector, gems and jewellery SEZs have been set up
of four are operational in Maharashtra, West Bengal, Rajasthan and Andhra Pradesh. Further, formal
approval has been given to 13 SEZs in the sector.
• According to economic survey of 2017, Economic growth to expected to rebound to 6.75 to 7.5% in
2017-18. The long-term growth prospective of the Indian economy is positive due to its young
population, corresponding low dependency ratio, and healthy savings and the demand for diamonds
has tripled itself in the past decade owning to these factors. This provides a good opportunity for the
SMEs in India to tap the potential.

Challenges-
 The Chinese government has begun to initiate multi-billion dollar deals for rough diamonds in
exchange for things that China produces like medicines, oils, and industrial goods and services. Also,
China’s investment in Africa is a large threat to the Indian diamond cutting and polishing industry.
 There is a growing preference for polishing diamonds in countries where the diamonds are mined,
like in Africa. It means that the Indian sector will have to face problems at home because India is not
a large producer and therefore has to import rough diamonds from Africa.
 Low profit margins in the cutting and polishing segment have heightened midstream players’
interest in synthetic diamonds, but synthetics have to date gained only limited acceptance among
jewellery retailers and end consumers.
 Rio Tinto shut down its Rs.2,200-crore diamond mining project in Madhya Pradesh (MP). Once
developed, the Bunder diamond mine was expected to place MP in the top ten diamond producing
regions of the world. But Rio Tinto could not develop this mine due to troubles it faced because of
the environmental challenges involved in developing that mine.
 The recent policy of demonetization caused a little roadblock for the Jewellery sector and affected
the small and medium enterprises, the industry has been back to normal and the future outlook
seems positive economically.

Future-
With the support in the form of increasing urbanization, middle-class expansion and the rock's
appeal as engagement rings, India is set to emerge as the third-largest market for diamond jewellery
by 2020, leaving behind Europe and Japan. Meanwhile, China and the US are expected to remain as
the leading diamond jewellery markets. The long-term outlook for the global diamond market
remains positive and 2% to 5% yearly growth on a long-term basis is expected on the back of strong
fundamentals in the US and the continued growth of the middle class in China and India. In India as
well, the rising disposable incomes, changing consumer preferences more in favor of modern retail
and impulse buying make for an environment which is conducive for growth and expansion plans.

Increasing influence of digital technologies

Emerging and maturing digital technologies are affecting all parts of the value chain, the report
says, enabling diamond producers, midstream players and retailers to increase efficiencies within
their operations.

A good example of this trend are the blockchain projects launched this year, aimed at helping
consumers confidently identify the origin of their diamonds. The most significant, “Tracr”, even
saw the sector two giants — De Beers and Alrosa — joined forces to test a pilot testing the
blockchain technology-based platform.
Growing presence of lab-grown diamonds

The process of growing a diamond is similar to growing a flower in a greenhouse, as opposed to a

flower growing in the wild (which is comparable to Mined Diamonds). Grown diamonds have
physical, chemical and optical properties identical to Earth-Mined Diamonds and thus, there is no
difference between grown and mined diamonds except for where they are grown.
Diamond is a superior material for many purposes due to its hardness, optical clarity, and resistance
to chemicals, radiation, and electrical fields. Earth-mined diamonds are constrained by limited
supply, rigorous and time-consuming formation process. As diamond growing technologies continue
to evolve, the larger jewellery industry, commercial sector & the research community – for the first
time – doesn’t have to only on depend on mined diamond resources.3 Different techniques of
growing high quality diamonds are discussed here below.
1) HPHT
In the HPHT technique, diamonds are formed in a growth environment by exposing a
diamond seed to high pressure and temperature conditions. The diamonds growth in HPHT
machines were developed in the 1950s by General Electric and the technique has since
remained largely the same. In the HPHT method, there are three main press designs used to
supply the pressure and temperature necessary to produce synthetic diamond: the belt
press, the cubic press and the split-sphere (BARS) press. Diamond seeds are placed at the
bottom of the press. The internal part of press is heated above 1400 °C and melts the
solvent metal. The molten metal dissolves the high purity carbon source, which is then
transported to the small diamond seeds and precipitates, forming a large synthetic diamond.
HPHT technique greatly restricts the size and quality of diamonds and often results in brown
or orange coloured diamonds. Due to low yields, limited sizes and presence of metallic and
other impurities, the applications of HPHT grown diamonds have in fact been limited in
comparison to a diamond’s great potential. The above factors restrict the potential of HPHT
grown diamonds in high technology and gem applications.

2) CVD
Chemical Vapour Deposition (CVD) using microwave plasma (MPCVD) is a method by which a
diamond can be grown from a hydrocarbon gas mixture. The CVD growth of carbon
nanomaterials consists of several stages: • Substrate heating/conditioning • Growth •
Substrate cooling To start, CVD technique decomposes carbon-containing gas molecules
such as methane, acetylene or carbon dioxide at sub-atmospheric pressure that deposits
diamond as a film on a substrate. Diamond formation by CVD is normally performed under
high heat conditions using a gas based carbon source in an excess of hydrogen. Two of the
more popular experimental methods include the use of a hot filament reactor (HFCVD) and
the use of a microwave plasma reactor (MPCVD). While each method differs in detail, they
all share features in common.
a) HFCVD-
This method is the earliest method used for the growth of diamond. When the filament
is heated to high temperatures and as hydrogen is passed over the hot filament, atomic
hydrogen could be easily produced. The simultaneous production of atomic hydrogen
during hydrocarbon pyrolysis enhances the deposition of diamond, by suppressing
graphite formation. HFCVD possesses the ability to adjust to a wide variety of carbon
sources such as methane, propane, ethane and other hydrocarbons. Even oxygen
containing hydrocarbons including acetone, ethanol and methanol can be applied. The
 addition of oxygen-containing species may widen the temperature range within which
diamond deposition take place.
b) MPCVD-
This is another CVD method in which the microwave plasma is used to dissociate
molecular hydrogen into atomic hydrogen and active carbon species into promoting
diamond formation. The excitation frequency for microwave plasma CVD is typically
2.45GHz. Microwave plasma is unique in that microwave frequency can oscillate
electrons. High ionization fractions are generated as electronics collide with gas atoms
and molecules. Among all the CVD techniques, MPCVD provides stable conditions for
producing high quality single crystal diamonds. With the aids of these techniques for
diamond formation, we are no longer dependent on natural diamond sources and can
achieve properties well beyond those of natural diamond.

Shifting preferences of younger generations of consumers

Young consumers are causing industry players to rethink their sales and marketing strategies. The
self-purchase product category continues to grow as Millennial and Generation Z’s female
spending power increases. “Younger generations are also more inclined to consider the opinions
of social influencers, customer reviews and ‘likes’ when making purchasing decisions,” Linde
says. “Social media shopping is expected to increase significantly as the spending power of Gen Z
rises and many retailers are already strategizing how the shifts in preferences will change their
approaches to marketing and operations.”

She predicts that continued future demand for diamonds will depend largely on the industry’s
ability to market its jewellery successfully — specifically, the process of buying and owning one —
versus other types of luxury goods and experiences.

Bain & Co. sees a potential positive effect in the overall market from the growing influence of lab-
grown diamonds. “If the industry plays its cards right, we believe it could actually benefit from the
potential of lab-grown diamonds to potentially increase demand for diamonds in general,” the
report concludes.

A change in trajectory of the U.S. dollar

The trend of a weaker U.S. dollar in 2017 reversed course in 2018. As of late-2018 the Indian rupee is
at a historic low versus the dollar, down 13% year-to-date, the South African rand is down 16% and
the Chinese yuan is at a multi-month low. Further the pound and euro are down 8% and 6%,
respectively, versus the dollar in 2018.

This is in part due to idiosyncratic challenges associated with the nations listed above but also due to
the fact that the U.S.’s Federal Reserve has raised the Fed Funds interest rate from 1.375% to
2.125% in 2018. A higher U.S. interest rate tends to boost demand for dollars from abroad which are
invested in fixed-income securities that yield a higher return. In addition, tighter monetary policy is
indicative of a stronger economy, and a lower risk perception draws demand for U.S. dollars
intended for purchasing dollar-denominated assets.

The implication of a stronger U.S. dollar on the diamond industry is varying. For example, a weaker
South African rand tends to benefit miners that operate in rand and sell diamonds in dollars, such as
De Beers Consolidated Mines and Petra Diamonds. However, a stronger dollar can also have a
negative implication on the industry; for example, rough is more expensive in rupee terms for Indian
diamond manufacturers.

Perhaps the most important implication of a stronger dollar on the larger diamond industry is a
decrease in demand from non-U.S. end-consumers. Non-U.S. consumer’s purchasing power for
diamonds erodes as the dollar strengthens given that the price of diamonds globally tends to be set
in terms of U.S. dollars. For example, there has been some evidence in 2018 that Chinese diamond
consumption has been impacted by a weaker-yuan-stronger-dollar dynamic. Further, this dynamic
has been especially evident in the case of direct foreign exchange, for example, a decline in
Mainland Chinese consumers shopping abroad in the U.S., as Tiffany recently noted.

Looking at 2019, U.S. corporate earnings growth is expected to fall by as much as 50% as the effect
of the corporate tax cut in 2017 normalizes and tighter monetary policy diminishes profitability. A
relative slowing of the U.S. economy in 2019 could lead to a pause in the current higher-interest-
rate-trajectory environment, which could lead to a weakening of the U.S. dollar, which could lead to
an increase in diamond demand outside of the U.S.

The emerging midstream challenge

The current problem in the midstream is often coined as the “midstream profit squeeze”. The issue
has emerged as a result the accumulation of a number of factors over the last few years. The
outcome has been an erosion of margins in the midstream leading to a deterioration of midstream
balance sheets. The main contributors to this have been:

Producer policy of ‘fully priced’ rough diamonds- Over the past few years, producers sell diamonds
at the secondary market price, and/or the highest possible price at which a customer will make a
rough purchase. This has happened to such an extent that secondary market prices have often been
lower than producer prices.

Primary rough purchasers (such as De Beers’ customers) have had a role to play in creating this
situation. They willingly purchased unprofitable rough while not (perhaps) accepting the producers’
long term pricing February 2015 Current Themes Series: The midstream problem Page 2 of 3
intentions. While some of the reasons for doing this are understandable, this behaviour is
nonetheless an important factor in the current scenario.

Price prisoners at both ends- Midstream companies have a challenge because they are, in effect,
‘price takers’ for both rough and polished. They do not exert much control over rough prices. Rough
prices are more or less the same wherever you buy from. On the other side, diamond manufacturers
often don’t have much control over polished diamond prices. There is a market clearing price for
polished. There are exceptions to this, but this seems to be the prevailing situation for many
manufacturers.

Midstream debt financing has the potential to become more scarce- Added to margin pressures
from high raw material costs and almost perfectly contestable downstream markets, the midstream
is suffering from increasing scarcity of finance with one major bank (Antwerp Diamond Bank) exiting
the industry and other banks freezing or limiting their positions given the impairment risks. The
deleveraging in the midstream increases the cost of capital. In addition, when markets are weak,
cash flow management becomes is more challenging.
Part of the problem is cyclical and down to market conditions. The global economy has faced
considerable uncertainty over the last few years. There is a greater austerity for businesses and
consumers. This has gone on for some time, but it’s still part of a cycle.

Indian Bank in Antwerp to End Diamond Financing Within Year (UBI)

 According to Elizabeth Burden and Thomas Biesheuvel for Bloomberg, the Union Bank of
India (UBI) is planning to pull out of the global diamond hub of Antwerp. The bank has given
notice that it will close its branch in the Belgian city within a year, according to Chief
Executive Officer Rajkiran Rai Gundyadka. "The viability of the branch isn’t established,” he
said.

 Diamond financing has faced significant challenges in recent years as the banks have
implemented a blanket approach to 'de-risking', neglecting recommendations from the
Financial Action Task Force to approach it on a case-by-case study. Additionally, Bloomberg
mentions the withdrawal of Standard Chartered Plc from diamond financing and the closure
of the Antwerp Diamond Bank as having an impact on lending in the sector. Indian lenders
had largely filled the void, they write, but earlier this year the diamond industry was hit by
high-profile cases: Nirav Modi and Mehul Choksi were implicated in an alleged $2-4 billion
fraud involving the use of fake guarantees from Punjab National Bank to solicit loan, a
scandal that rocked India’s banking industry.

 Citing Dfin - a London-based corporate finance firm specializing in the diamond sector total
lending to the midstream - Bloomberg says lending to the diamond midstream has fallen
from $16 billion in 2013 to just over $13 billion last year and is forecast to drop below $11
billion in the next couple of years. Whether UBI's exit from Antwerp specifically is a "blow"
to the diamond capital, however, is less certain. According to an official from the Antwerp
World Diamond Centre (AWDC), the representative body for the Antwerp diamond industry,
while AWDC regrets the withdrawal of UBI from the industry, it will not have a significant
impact on diamond financing and services in the city. The bank currently has a limited
lending portfolio in the city, and the majority of the companies it services have alternative
accounts elsewhere. Given the limited scope of UBI’s lending, as well as the fraud cases and
non-performing loans plaguing Indian banks across multiple industries - forcing them to
restructure - the AWDC expected this move was imminent.

De Beers' 2018 Revenue Rises but Earnings Slide

De Beers reported a 4% rise in total revenue for FY 2018, reaching $6.1 billion, but its earnings slid
by 13% to $1.25 billion driven by expenditures such as the $87 million acquisition of Peregrine
Diamonds and the launch of Lightbox Jewellery. Rough diamond sales rose by 4% to $5.4 billion
(2017: $5.2 billion), driven by improved overall consumer demand for diamond jewellery and a 1%
increase in the average rough diamond price index. The average realised price increased by 6% to
$171 per carat from $162 per carat, reflecting the lower proportion of lower value rough diamonds
being sold in the second half. The soft market for smaller stones resulted in a 2% decline in
consolidated sales volumes to 31.7 million carats.

De Beers notes that preliminary data for 2018 indicates an improvement in global consumer demand
for diamond jewellery, in US dollar terms. Benefiting from this trend, the miner says its revenue was
bolstered due to improved ‘high end’ jewellery sales at De Beers Jewellers, although this was partly
offset by a 5% decrease in Element Six revenue due to a reduction in sales to the oil and gas market
(Element Six provides synthetic diamonds for the industrial market). However, they said there were
a number of "headwinds" that impacted consumer confidence, including the US-China trade dispute.
While global growth during the first half of the year was driven by solid US and Chinese consumer
demand, in the second half, while the US maintained its growth rate, Chinese demand slowed, with
trade tensions leading to slower economic growth and stock market volatility.

Singing a tune that has become very familiar, the miner explains that in the second half, the low-
priced product segment of rough diamonds came under considerable pressure due to weak demand
and surplus availability, the rapid depreciation of the rupee and a reduction in bank financing in the
midstream. Overall, rough diamond production increased by 6% to 35.3 million carats from 33.5m
carats, which was in the lower half of the production guidance range of 35-36 million carats. Canada
saw the biggest jump in production, jumping 19% to 4.5 million carats. Production in Botswana
(+6%) and Namibia (+11%) also performed well, but rough output in South Africa fell 10% to 4.7
million carats owing to a period of suspended production at Venetia following a fatal incident, as
well as lower run-of-mine ore grades experienced as the mine approaches the end of the open pit.

The company reports that capital expenditure rose 53% to $417 million from $273 million last year,
which represented the company's lowest Capex in the last five years. About 60% of the increase is
attributable to the acquisition of Peregrine, but also to new projects such as their synthetic diamond
project Lightbox, their asset-tracking blockchain pilot Tracr and a their pilot to create a secure and
transparent route to market for ethically-sourced artisanal and small-scale mined (ASM) diamonds,
called Gemfair. De Beers says they also increased their marketing spend (proprietary and category)
to $166 million, the highest amount in a decade, and incurred typical expenditures on exploration
and evaluation in Canada. The company also reports that it made good progress on projects to
expand their production capacity, including continued work on transforming our Venetia Mine in
South Africa into an underground operation.

ALROSA Convinces Chinese Jeweller to Trade in Euros Instead of

Dollars

 Searching for a means to safeguard smooth transactions in the event it ends up having US
sanctions imposed on it, Russia's Alrosa, the world’s largest producer of rough diamonds,
has found a partner in its efforts to conduct trade in a currency other than the US
dollar. Evgeny Agureev, Alrosa’s director of sales, told the South China Morning Post that it
has enlisted one of its many Chinese customers - Chow Sang Sang Jewellery - on a long-term
contract this year. He did not disclose details such as volume and prices to the newspaper,
but officials from both organizations said they will trade in euros as part of a pilot project.
Alrosa's pilot project extends beyond China, a spokesperson told The Diamond Loupe last
summer, as the miner has been exploring transactions in rubles with India, China and
potentially Europe.

 The Trump administration has imposed sanctions on over 200 Russian businesspeople,
officials, banks and companies the US considers as “suspected serious and continued threat”
to its security. An Alrosa spokeswoman told SCMP that although the company is included in
the so-called “Kremlin list” for possible sanctions, it has not been affected by any sanctions
and has maintained its operations in the US last year. Eric Ng of the SCMP said Chow San
Sang’s signing is a positive start for Alrosa as the miner prepares for a tough year amid a
slowing Chinese economy and an ongoing trade war with the US.
State Bank of India to Tighten Lending Standards to Gem & Jewellery
Sector
The latest fallout from the Nirav Modi-Gitanjali scandal that has rocked India's diamond and
jewellery sector comes in the form of the State Bank of India's (SBI) decision to tighten the collateral
demands on borrowers from the industry. India’s largest lender has told borrowers in the gems and
jewellery sector to either bring in more collateral to back their existing loans or reduce the size of
them in a timely manner. According to The Economic Times of India, the decision was driven by the
board which directed management to plug the gaps in risk mitigation system, especially for
borrowers in the jewellery sector which has been under intense scrutiny since Nirav Modi's nearly $2
billion fraud was detected by the Punjab National Bank.

The SBI has reviewed all loans given to jewellers since the outbreak of the fraud scandal to find out
whether adequate safeguards were taken while giving the loan. If this turns out not to be the case,
the bank has instructed its borrowers to raise the collateral level to at least 40-50% of the loan value
or cut the size of the borrowing by half. Earlier, loans were given on easier terms with 10-15%
collateral, but mounting pressure has forced a correction. “In principle, we review the underwriting
system whenever delinquency comes into question,” said SBI deputy managing director Sunil
Srivastava. “It’s a practice to tell borrowers to infuse more equity in the business or increase the
collateral to back the loan, whenever there is weakness.” SBI has also demanded a definite plan
from these borrowers on how they are going to implement this. The move by the SBI is likely to be
followed by other lenders, which in turn, may dry up funds flow to the gems and jewellery industry.

Some people in the trade fear that with the banks growing increasingly wary of lending to the
sector in India, cutting and polishing units, which employ thousands of people, may move out of the
country - with China trying to lure them away. According to those in the trade, China has been
aggressively pursuing Indian diamond cutting and polishing units to set up facilities in the country.
“Apart from cheaper labour the Chinese are offering better infrastructure,” says the owner of a mid-
sized diamond polishing company with units in Mumbai and Surat. It should be noted, however, that
China has been trying to lure Indians away for several years now, and few companies have taken the
bait. It has been suggests that the big players with operations in Antwerp, Israel and elsewhere may
be tempted by the Chinese, who are also setting up cutting and polishing facilities in African
countries like Zimbabwe, where the cost of labor is much cheaper than in India.

A long, slippery slope

MG Arun, in an extensive article recently published in India Today, "Diamonds in the dust", details
many of the factors that have led to the current situation, from taxation changes to shady practices
by diamantaires and banks alike. Nainesh Pachchigar, a Surat-based diamond merchant and
chairman of the gems and jewellery committee of the South Gujarat Chamber of Commerce and
Industry, says imports have shrunk since loans from nationalised banks dried up in the aftermath of
the scam. Moreover, the demand for diamonds from India has slipped in the past few weeks as
customers have grown wary of purchases from the country. "There is so much cross-checking now, it
has created a liquidity problem for the business," says Pachchigar. "Only 5-10 per cent of the entire
loan submissions are being entertained." He fears a crackdown on the sector will also stifle
companies doing legitimate business.

Mahendra Gandhi, president of the Mumbai Diamond Merchants Association, says business is now
being done only after submitting 100 percent collateral (assets worth the entire value of the loan) to
banks for procuring loans. "We are telling all our members to be cautious henceforth, and to take
KYC (know-your-customer) details from all our clients, so that we know exactly who we are dealing
with," he adds. This is not a problem that just cropped up. Arun writes, "Although the Modi and
Choksi frauds, along with the Winsome Diamonds case where promoter Jatin Mehta allegedly duped
Indian banks of Rs.6,800 crore, have exposed the dark underbelly of the Indian diamond business,
the rot runs deeper than previously estimated. Not many in the industry are surprised at the recent
exposures; fraudulent transactions, they say, have been taking place for years."

"While Modi has been accused of raising letters of undertaking (LoUs) from Punjab National Bank
with no underlying collaterals to borrow money from the overseas branches of counterparty banks,"
he continues, "the industry is plagued by other malaises such as 'round-tripping' where loans are
raised using fake invoices, or 'over-invoicing' - using inflated purchase bills to raise more money from
banks than what's actually paid for. While these practices thrive in many businesses, the sheer
brazenness with which the diamond trade employs them is shocking.

"Such activity has become rampant in the past decade," Arun quotes an industry observer as saying.
For instance, a merchant raises a letter of credit (LoC) from a bank showing the import of a particular
'parcel' of diamonds. Once he gets the money from an overseas bank based on the LoC given by his
bank in India, he uses the same parcel to raise money from another bank. For this, he submits
invoices from different importers. Except that these importers are his own companies and the
invoices fake. A recent sting operation by India Today TV's investigation team revealed how certain
agents in the trade bragged about their 'connections' with bankers that helps them raise money on
these fake invoices. "There is no real hira (diamond) here, just some companies on paper and a few
invoices," says one agent.

India’s GJEPC Fears US Gov’t Shutdown Impacted Diamond Exports

 The partial shutdown of the US government is likely to have had a negative impact on
exports of small diamonds from India to the US, according to Colin Shah, vice chairman of
the Gem & Jewellery Export Promotion Council (GJEPC). This comes as unwelcome news to
an industry that is already experiencing sluggish performance, with The Economic
Times citing an 8.5% decline in the value of polished exports in the first nine months of
FY2018, sitting at to $22.41 billion. The shutdown started just before Christmas and lasted
for a record 35 days in which an estimated 800,000 workers - not counting the contracted
workers serving them - went without pay as the Democrats in Congress defied Trump's
demand for $5.7 billion in federal funds for a US-Mexico border wall.

 “We are yet to assess the entire impact of the US shutdown on exports,” said Shah, “but
the impact will definitely be felt on consumption of smaller diamonds that are generally
purchased by middle-class US citizens who have been affected by this shutdown.”
Furthermore, while the government has fully reopened, it is only at full-strength
provisionally. President Trump has set a deadline of February 15 for a budget deal, without
which another shutdown may follow. Vipul Shah, a diamond exporter, told the Times that
the US-China trade war has also impacted the movement of loose diamonds from India to
China. “Exports of diamond jewellery from China to the US have slowed down. Demand from
the Far East is less now, which is also impacting Indian exports.” In the nine months to
December 2018, exports of cut and polished diamonds from India fell 13% to 22.89 million
carats.

 GJEPC seeking relief, submits 'wish list'

 Last week, the GJEPC released its pre-budget wish-list enumerating the various policy
changes necessary for the industry's further growth. The GJEPC has sought Government
support in ensuring ease of doing business to help exporters enhance exports in 2019-20.
 Specifically, the GJEPC seeks a reduction of the import duty on cut and polished diamonds
and gemstones from 7.5% to its earlier level of 2.5%, according to a statement from GJEPC
Chairman Pramod Kumar Agrawal. The organization also asked that 5% of the FOB (free-on-
board) value of exports of cut & polished diamonds in the preceding licensing year should be
allowed to be re-imported duty-free by exporters. The wish-list did not stop there, as the
GJEPC called for a reduction of the import duty on gold from 10% to 4%, as well as change in
the country's income tax regulations to enable foreign mining companies to sell rough
diamonds through the Special Notified Zone.

 Further, the GJEPC reiterated a long-standing demand for the introduction of a presumptive
taxation system for diamonds and gemstones in India. “The introduction of Presumptive
Taxation would not only increase the ease of doing business for diamantaires but also
encourage diamantaires from across the world to start operations in India as against other
preferred destinations such as Belgium, UAE and Hong Kong,” the GJEPC explained. They
also advocated segregation of ITC HS Code for both rough lab-grown diamonds and other
synthetic stones to provide for the clear differentiation between natural and lab-grown
diamonds. They are seeking the introduction of a job work policy in the gems and jewellery
industry, and an exemption from payment of IGST on re-import of goods exported during
overseas exhibitions/consignments/export promotion tours "to protect exporters from
harassment.”

 Further still, the GJEPC calls for “a conducive banking environment” for exporters of the
gems and jewellery sector. For this, it urged relaxation of credit norms for working capital
requirements and requested the government to introduce interest subvention of 5% on
export finance for the gem & jewellery sector. The gems and jewellery sector contributes 7%
to the country’s GDP, 13.5% to India’s merchandise exports and directly employs around five
million people.