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For a closer cut

Joydeep Ray

The narrow bylanes of Mini Bazar and Mahidarpura in Surat, Gujarat, are buzzing with activity from dawn to dusk. Daily thousands of traders make their way through a garbage dump and dodge two-wheelers, cattle and even pigs to reach one of the 10,000 diamond factories littered in the vicinity.

These two congested hubs are where all the action is. From cutting to polishing diamonds, operating largely from 12ft x 12 ft rooms or mid-sized halls, people work round the clock to notch up daily sales of more than Rs 500 crore. Last fiscal, the total exports of cut and polished diamonds from Surat alone were a glittering Rs 36,000 crore. And while India accounts for 90 per cent of diamond volumes exported, it has a whopping 55 per cent share in value terms. It gets this share due to its sheer volumes.

So far so good. But even as the lure of the gems brings in hordes of buyers to the country, India, and more importantly Surat is faced with multi-pronged competition. There are disagreements about how much impact the competition will have on the business.

Diamond merchants in Surat claim that it could threaten Surat's pre-eminence in the diamond trade. But others disagree. Says Sanjay Kothari, chairman, Gems & Jewellery Export Promotion Council, India's apex trade promotion body, "this is not likely to cause any upheaval".

For one, diamond producing countries like South Africa and Ghana are getting smarter. Instead of transporting diamonds to India for cutting and polishing, they are setting up their own finishing operations.

Second, China has joined the diamond club. And with the quality of workmanship there said to be improving by leaps and bounds, the world's most populous country could dull India's lustre in the diamond trade, particularly in Surat.

For the past two years, more than a dozen Surat-based diamond units have relocated to China. And others are in the process of doing so. The Indian diamantaire perceives China as a growing threat as a diamond processing and cutting centre. He believes that while there is no immediate threat in the short term, it is only a matter of time before the Indian diamond industry feels the pinch.

Today, of the $4,205 million imports of rough diamonds, India exported $5,972 million, a drop of 3.47 per cent in fiscal 2001. In the same period, imports stood at $4,205 million in 2001-02, or down 3.32 per cent from the previous year's $4,350 million. "There was bound to be a shortfall, especially as it was the Millennium year before that," says V Suri, director of Gem & Jewellery magazine.

In comparison, the Chinese imports are a mere $500 million. It also has only 10,000 diamond cutting and processing units compared to India's 800,000 to 1 million. But this is likely to grow substantially.

Already, diamond traders in Surat are complaining. "Now no less than 100,000 people are involved in the trade in China and diamond experts from India are being lured to work there. China is also encouraging Surat's unit owners to set up shops there," says Pravin Nanavati, president, Surat Diamond Association. He claims that in the last two years, 12 diamond companies from Surat have relocated to China. "The number could well go up in the days to come," he adds.

China's potential in the diamond industry is once again an outcome of leveraging its inherent resources. China has the advantage of extremely cheap labour. While labour is cheap in other Asian countries as well, China scores on the sheer number of people available.

Also, the quality of workmanship is impressive, says an international buyer from South Africa. Having placed his orders in India, he is scheduled to leave for China over the weekend.

A major catalyst here is De Beers, the world's largest supplier of rough diamonds. India has been a major market for this South African conglomerate. Now, it is looking to China to reduce its dependence on India.

Diamond merchants say the first signs that China was gaining priority in De Beers' scheme of operations became obvious two years ago. They point out De Beers' Millennium boxes, for which the sales promotion competition was held in India, but was ultimately bagged by Hong Kong for processing. At that time, De Beers executives, had pacified the trade here by saying that its insecurities were unfounded and that its Indian clients formed a significant number of the total clients.

De Beers has been developing the Chinese diamond market since 1997 and it really gained momentum since early 2001, when the first Surat unit shifted there.

Moreover, it claimed that the Chinese focused on a totally different range of diamonds which were historically cut in Belgium, Israel and the Far East. These included the sawn or sawable rough diamonds. India, it said, were specialists in makeables, clivage and rejection variety.

To be fair to De Beers, developing China is a smart business strategy. With Russia, Belgium and Israel setting up units in China, it is only understandable that De Beers must spread its risks through geographical diversity. "We have no qualms about them hedging their bets, but our industry could suffer in the long run, more so as the government does little to improve our plight," says a diamond merchant.

Used to surviving in a monopolistic environment, competition, however small, is looked upon as a threat to the industry, say market experts. That's why, today, the Indian diamond industry is gradually gearing up to save its turf from other cheaper competitors.

Indian diamantaires want to leverage their expertise to set up units in diamond producing countries like Canada and South Africa. They want to enter into partnerships for cutting and polishing centres.

At the same time, the Indian players are making investments to upgrade the quality of their products. Take Lakshmi Diamonds, which has an air-conditioned five-storeyed building near Mini Bazar. Chunibhai Gajera, owner of the enterprise says that they have introduced laser machines to cut diamonds and imported other instruments.

"This is to cut and polish diamonds in the most efficient way to ascertain quality," he adds. The company has also set up a quality control cell in the last 18 months to oversee quality standards at all its five units in Surat.

In fact, poor quality is something that most of the unit owners are concerned about. Jivrajbhai Surani, Co-Convenor of GJEPC's Gujarat division, says that quality has a lot to do with the decline in exports. "This is not only because of instability in the US market but also because of lack of quality consciousness among most of the industry houses. Now, we are all concentrating on this aspect," says Surani, the owner of J B Diamonds.

Efforts like these, have no doubt impacted diamond sales. During April 2002, it recorded exports of cut and polished diamonds worth $486.82 million against $304.66 million during April, 2001. "In the first quarter of this year, we have recorded an export worth $1.4 billion which is much better than that the performance during the first quarter of 2001. There will be a manifold increase this year as reflected by our studies and those of US agencies," says a senior member of GJEPC.

This comes at a time when the Surat industry has had a high inventory of rough diamonds, following the economic meltdown in the US and Japanese markets since the late '90s.

But unlike other industries, liberalisation has taken a long time to make its presence felt in the diamond trade. As a diamond merchant put it, "We are also becoming competition savvy."

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