India Spreads Its Wings

Mention India to someone in the diamond industry and they’ll likely call it “the place where they cut low-end diamonds.”

But that’s just part of the story. India in 2003 also is a trading center, jewelry manufacturer, and diamond consumer market. It might even become a diamond miner, as big names like De Beers and BHP are exploring throughout the country.

These are heady times for India. The industry grew 22% in 2002 and has increased 270-fold since 1966. It manufactures 55% of the world’s diamonds by value, 80% by volume, and 90% of pieces. It employs a jaw-dropping 1 million people.

The outside world is noticing. Wal-Mart just set up a buying office near Mumbai. The Gemological Institute of America (GIA) is certifying Indian diamonds through Rapaport Corp. And De Beers recently gave India a big vote of confidence by allocating much of its last sight to Indian manufacturers.

Mumbai diamantaires are proud of the strides made by their industry—not to mention their city and country. While low labor costs remain a key to India’s success, manufacturers today are just as likely to credit their investments in technology or their increasingly skilled workforce.

“People don’t understand how much the Indian market is growing,” says Shreyas Doshi of Shrenuj & Co. “There are factories of 4,000 people. It is not a cottage industry anymore.”

Better range. What’s striking is that India’s good fortune has come during a not particularly good time for the industry. India has made up for the soft demand worldwide by gobbling up more of the market, cutting bigger and better stones traditionally bound for centers like Israel.

“There is now hardly any difference between Indian and Israeli makes,” notes Vasant Mehta of V Rameshchandra. “In the last few years, D and E colors have been cut in India. There are Ideal cuts in India. That’s something new, and it’s very important to this industry.”

All this has meant big gains in rough imports, including a 67% leap this January alone. The amount of rough coming from Israel and the United Kingdom (meaning De Beers) has doubled since 1998. Israelis hunting for polished are now regular visitors to India.

Yet, as well as the Indian diamond sector is doing, jewelry is where the real action is today. India’s jewelry sector is not as established as its diamond manufacturing industry, claiming only about 1% of the market. But that room for growth—along with the better margins and terms—is what makes the sector so attractive.

“In the diamond area, we are pretty saturated,” says Atish Khotari of Jewelex. “India is already cutting nine out of 10 diamonds. How much more can you expand?”

The jewelry market recently got an important psychological and competitive boost when the United States lifted its 6.5% duty on Indian jewelry, following India’s entry into the World Trade Organization. “[Lifting the duty] has helped a lot,” notes Gold Star managing director Alkesh Shah. “In today’s world, where margins are shrinking, 6.5% is a big thing.”

The ultimate goal is to turn India into a “one-stop shop” for overseas buyers.

“Customers were already coming here to buy diamonds, so if they can buy jewelry also, it makes their job a bit easier,” notes Shah. “Customers don’t want the headache of buying loose, taking it to a contractor.”

As with its diamond sector, jewelry manufacturers are looking upwards, hoping to capture a chunk of the better-end market.

“When we started nine years ago, there was a question of whether our jewelry was acceptable,” says Khotari. “We have passed that level of general acceptance. Now the challenge is to be accepted in the high-end market.”

That might surprise people who never thought they’d see the words “high-end” and “India” in the same sentence. But that image is part of the problem, notes Sribash Dasmohapatra, exhibition consultant for the Gem and Jewelry Export Promotion Council (GJEPC). “The perception of India needs to be changed a lot,” he explains. “People think we only serve the low-end market. Today, we are producing all kinds of jewelry items. We can compete with the best in the world.”

“India manufactures everything,” agrees Romy Mehta of Bapalal Keshavlal, a company that is so high-end it exhibits at the Luxury by JCK and Couture shows. And don’t talk to him about India’s low-cost workforce: “I don’t think my labor is that cheap.”

IADC helps out. Australia’s Argyle mine was among the first to see the potential in India’s jewelry industry. Ten years ago, it founded the Indo-Argyle Diamond Council to promote smaller-stone jewelry. Indian manufacturers credit the IADC with opening doors for them and helping them improve their product, but as Colin Shah of Kama Jewelry points out, “IADC got you to the customer. After that, it was a lot of hard work.”

There is, of course, another, very important miner nudging manufacturers downstream—De Beers. Its “Supplier of Choice” program encourages clients to get involved in marketing and move closer to the end consumer.

“Our whole strategy has changed,” says Sanjay Khotari, chairman of the GJEPC. “You used to get rough, manufacture it, and sell it as polished. Now people are joining together, whether it’s with a jewelry manufacturer or a direct source of rough.”

Some worry that all this vertical integration will squeeze out the middlemen.

“There will still be room for everyone in this business, but people have to change their attitudes,” says Dilip Lakhi of The Lakhi Group. “If you provide service, if you add value, then you have room to make money. If you are just a postman, there may not be a place [for you].”

Growing pains. India, like all the cutting centers, is not resting on its laurels. It faces competition from China, which, like India, has low-cost workers and access to a massive consumer market. Plus, all this expansion has not come without some growing pains.

“The problem in India is we don’t treat jewelry manufacturing as a business,” says Amar Khotari of Inter Gold. “People look at jewelry as a way to sell diamonds. Now we have to make it an efficient vehicle to sell diamonds. Diamond economics cannot subsidize inefficiencies.”

Lakhi feels that the changes sweeping the diamond industry will affect India—and people had better be ready. “The old days when this was just a family business you could run without effort are gone,” he says. “We all have to innovate, be creative. In the past, we had an umbrella over us. Now there is no umbrella.”

For all its problems, the clearest sign that Indian dealers have confidence in their industry is that they’re handing it down to their children—something that is relatively rare in other centers.

“Take a look around,” says GJEPC’s Khotari. “We have a younger generation taking over, and they are looking at things from a different perspective.”

This new wave is more likely to be educated abroad and better able to relate to customers, and already they have brought more professionalism and technological know-how to the industry. The new factories are bright and super-clean, with less of the grimy Third World ambiance of old. When during a factory tour, someone mentions that the workers look awfully young, the guide visibly blanches, noting that the factory would never use child labor—its contracts with Wal-Mart and the DTC explicitly forbid that.

Meanwhile, one long-held dream of the Indian industry—a spanking-new bourse complex—is set to become a reality after years of delays.

The nine-tower, 2,500-office, $200 million complex will be not only the largest diamond space in the world but also one of the largest complexes in all Asia. It’s expected to be finished in the next year and a half.

The complex will house virtually the entire diamond industry of India, which has outgrown its longtime residence at Opera House. It’s conveniently located near both the SEEPZ free-trade zone, where many jewelry companies are housed, and the Mumbai airport.