ENTREPRENEURIAL BUSINESS PLAN FOR LAB-GROWN

DIAMOND BUSINESS IN INDIA

2. LITERATURE REVIEW

2.1. BACKGROUND

The rise of laboratory grown diamonds have seen major disruptions in terms of the growing
consumer spending capacities and public awareness of diamonds. The world economy has supply of good
laboratory based on their unique product specifications and appealing quality (Griffith, 2023.). The lab
grown diamond industry is an intra-country vast industry and has established industry players. The segment
of this diamond fashion jewelry business is driven by updated industrial application processes, the cost
effectiveness of these diamonds over the traditional natural diamonds and sustainable methods for
production of these diamonds. The diamonds are grown in factories which are formulated using techniques
of chemical vapor deposition under high temperature and pressures (Varga, 2019. ).

2.2. THE PRODUCTION PROCESS

The CVD process of manufacturing of lab-based diamonds is done by replicating the natural process
of diamonds made in the earth’s crust. The process starts with the selection of a small natural diamond
known as the seed diamond. The seed diamond acts as a substrate upon which the new diamond will grow.
The CVD process takes place in a specialized reactor chamber. The reactor is typically a high-pressure and
high-temperature (HPHT) system which is designed to create an environment which is conducive to
diamond growth. A mixture of gases is introduced into the reactor. The primary gas used is typically
methane which acts as the carbon providing source (Arnault, 2022. ). Hydrogen (H2) is also used as a carrier
gas. These gases are crucial for the formation of carbon atoms required for diamond growth. The gases are
then activated using various methods such as microwave energy, hot filament or direct current discharge.
The activation breaks down the methane molecules while releasing carbon atoms (C) from the methane gas.
The released carbon atoms start to settle and accumulate on the surface of the seed diamond. The growth
may be slow and irregular while forming tiny diamond crystals (Edmonds, 2021. ).

As the process is set to continue the carbon atoms continue to deposit and stack upon each other
which gradually builds the diamond lattice structure. The temperature and pressure conditions inside the
reactor are maintained to allow the carbon atoms to bond together in a diamond crystal lattice (D’Haenens-
Johansson, 2022. ). Throughout the process various conditional parameters such as temperature, pressure,
gas flow rates and gas concentrations are carefully controlled and monitored to ensure optimal diamond
growth. Once the desired diamond size and quality are achieved, the reactor is cooled down gradually to
room temperature. This cooling process is essential to stabilize the diamond and reduce internal stresses.
After the reactor has cooled down, the manufactured diamonds are carefully removed from the seed
diamond and any other surfaces where they might have grown during the process (Koreshkova, 2021. ).

The harvested diamonds may undergo additional treatments to improve their color, clarity and
overall quality. This may involve cutting, polishing, and sometimes annealing to remove any remaining
defects. The final step involves rigorous quality testing to ensure that the lab-grown diamonds meet the
desired specifications and standards. They are examined using various gemological techniques which is just
like the natural diamonds.

2.3. PHYSICAL AND CHEMICAL PROPERTIES OF LAB GROWN DIAMONDS

 Chemical Composition: Lab-grown diamonds are composed of carbon atoms arranged in a

crystal lattice structure like the natural diamonds. The chemical formula is simply C (carbon).
 Hardness: Diamonds whether natural or lab-grown are the hardest known natural material. These
score 10 on the Mohs scale of mineral hardness. The exceptional hardness makes diamonds
highly suitable for industrial applications, cutting tools and application in abrasives.
  Density: The density of diamonds is around 3.52 g/cm³ which makes these diamonds denser than
most other gemstones and materials.
 Refractive Index: The refractive index of diamonds is approximately 2.42 which is the reason for
their brilliant sparkle and ability to refract light.
 Dispersion: Diamonds exhibit high dispersion, commonly known as "fire." This property causes
them to split white light into its spectral colors, creating a beautiful play of colors.
 Transparency: Diamonds are transparent to varying degrees, depending on the quality and purity
of the crystal. High-quality diamonds are usually more transparent and devoid of impurities.
 Color: Lab-grown diamonds can be produced in various colors just like natural diamonds. They
can be colorless, near-colorless or display various exotic colors due to the presence of trace
elements during the growth process.
 Crystal Structure: Lab-grown diamonds have a cubic crystal lattice structure which is known as
the face-centered cubic (FCC) crystal system.
 Inclusions: Like natural diamonds lab-grown diamonds can also have inclusions which are tiny
imperfections or foreign materials trapped within the crystal during growth.
 Birefringence: Diamonds do not exhibit birefringence unlike some other gemstones.
Birefringence is the ability of a mineral to split light into two different rays.
 Thermal Conductivity: Diamonds have excellent thermal conductivity which means they disperse
heat quickly. This property makes them valuable for certain industrial applications such as heat
sinks in electronics.
 Electrical Insulator: Diamonds are electrical insulators which means they do not conduct
electricity.
 Specific Heat Capacity: The specific heat capacity of diamonds is relatively high which means
they can absorb and retain heat efficiently.
 Cleavage: Unlike other gemstones, diamonds have perfect cleavage which means they can be
split along specific crystal planes. The cleavage is rarely observed in practice due to the hardness
of diamonds.

2.4. THE MAN-MADE DIAMOND INDUSTRY

The lab-grown diamond industry has experienced significant growth over the past decade which is
driven by various factors:

1. Ethical and Environmental Concerns: Lab-grown diamonds are often viewed as more ethical and
environment friendly alternative to natural diamonds and do not involve mining which is
associated with various social and environmental challenges.
 2. Cost Savings: Lab-grown diamonds are typically more affordable than natural diamonds which
helps in making them attractive to price-conscious consumers.
3. Technological Advancements: Continuous advancements in diamond-growing technologies have
led to higher-quality and larger lab-grown diamonds which helps in expanding their consumption
in jewelry making and other ornament application.
4. Shifting Consumer Preferences: Younger generations like millennials and Gen Z are showing
increase in knowledge interest for sustainably responsible sourcing of products which carry along
and aligns with the lab-grown diamond processes.
5. Lab-Grown Colored Diamonds: The industry has seen growing demand for lab-grown colored
diamonds which are more rare and usually costlier than the natural diamonds.

2.5. PRIMARY AND SECONDARY DATA

The consumer demographics regarding preferences of man-made diamonds over natural ones
explores the choice of targeted audience to capture response of their views for these diamonds. These data
can be used to understand the consumer adaption of these diamonds. According to consumer survey about
diamonds by Mintel, when age group 16 and above consumers were asked about man-made diamonds to be
better than natural diamonds. The population mix responses captured majority consumers neutral to these
diamonds count subjected to be 50% while people agreeing demonstrated 26%, which were more than the
people disagreeing which demonstrated 24% of the population sample. The scope of a methodology to
derive data about consumer response over various questions regarding their income levels and marginal
propensity to spend helps in determining the target market in India.

The secondary data primarily focuses on the importance of production of these diamonds through
various market data regarding the prices of artificial diamonds, cost analysis of man-made diamonds and
market growth rates for dominating in the Indian markets. The Indian Gem and jewelry sector is unique
sector which provides for exports of these diamonds and have 27% contribution towards global demand.

2.6 INDIAN MARKET ANALYSIS & FORECASTS

The Global market size of the fashion jewellery sector has significant projected potential expansion
to upto USD104 billion from the years 2019 to 2023. The Indian exports are forecasted to be USD100
billion by the year 2025. On a Global level, India is the top exporter of diamonds with a market
capitalization of 21% according to the market growth rates in the year 2020. The Indian Government is
strategizing to markup to USD70 billion mark in export for upcoming 5 years as compared to USD 36
billion in 2020.
 From April-October 2022, India's exports were at USD 24 billion which is a 1.20% year-on-year
growth as compared to the previous year's period. In April 2022, India’s exports were at USD 3.23 billion. In
October 2022, India imported jewellery worth USD 1.48 billion.

Growth in exports is mainly due to rising demand in the export market majorly by the USA and the
fulfilment of orders received by numerous Indian players through established channels of Virtual Buyer-
Seller Meets (VBSMs) which were conducted by Gems and Jewellery Export Promotion Council of India. In
the 4th quarter of 2021, the market demand for man-made diamonds substantially increased by 95% over the
same period a year ago marking themselves to the mark of 265 tonnes of exports. The 2nd quarter of 2021
proved to be better for the jewellery business as manufacturing companies were better prepared for the
lockdowns compared to 2020. The total jewellery demand volume increased by 25% Year-on-Year which
resulted to 55 tonnes in the 2nd quarter of 2021. The revised Special Economic Zones Act laid down by the
Indian Government is expected to boost exports of gems and jewellery.

India has ten special economic zones (SEZ) dedicated for gems & jewellery. These special zones
have more than 500 manufacturing units, which contribute to 30% of the country’s total jewellery exports.
The Government has permitted 100% Foreign Direct Investments in this sector under the automatic route,
wherein the foreign investor and the Indian companies do not require prior approval from the Reserve Bank
and Government of India. The Government has made hallmarking of jewellery as a mandate for all gold
jewellery and diamond artefacts and a period of one year is provided for their implementation.

As per Union Budget of 2021, the Gem and Jewelry Export Promotion Council had propelled a
reduction in Import Duty percentage for cut and polished diamonds by upto 2.5% in order to double the rate
of exports of gems & jewellery to USD 80 billion by the year 2025. Aggregate Foreign Direct Investment
inflows in diamond and gold ornaments in India stood at US$ 1,213.06 million between April 2000-October
2022, according to the Department for Promotion of Industry and Internal Trade (DPIIT).
2.7. GROWTH OPPORTUNITY IN INDIAN MARKET

India holds a prominent space in the global diamond market and consumptions around the globe. In
2023, the lab-grown diamond market in India is anticipated to experience substantial growth compared to
the previous year. Being a major participant in the global diamond distribution channel, India's diamond
market is thriving due to increase in consumer demand for lab-grown diamonds. Multiple factors have
contributed to the increasing likeliness of lab-grown diamond market in India. The rise in prices of natural
processed and mined diamonds in the last 5 years have made natural diamonds less affordable for many
consumers. Lab-grown diamonds are considerably cheaper which makes them accessible to a broader range
of buyers. The growing awareness among Indian consumers about the benefits of lab-grown diamonds
which includes environmentally-friendly and ethical concerns. This awareness is driving the preference for
lab-grown diamonds over natural ones. The Indian government has shown support for the lab-grown
diamond industry by implementing measures to promote its growth. Reducing the customs duty on imported
diamond seeds makes such diamond production processes more cost-effective for Indian companies to
produce lab-grown diamonds.
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