New Delhi (Sputnik) — Indian PM Narendra Modi's radical decision to demonetize high-value denomination currency notes on November 8 has not only impacted demand in the world's third largest diamond jewelry market, but could also push the sluggish global diamond industry into fresh turmoil.
India's Surat, a hub for cutting and polishing of the world's 80 per cent of diamonds by volume, is seeing reduced operations. Craftsmen now spend less amount of time at their workshops than their daily work quota. The shortage in currency notes since November 8 (when Modi live broadcast the currency ban) has affected production processes as most transactions are done on cash basis.
The shortage of cash is just the beginning of the problems for an industry that has thrived on transactions done with unaccounted cash. Modi's efforts to enhance tax compliance and curb black money and money laundering through conventional instruments such as gold and diamonds and other precious metals is affecting the industry, which employs one million people in India, most of them in Surat.
A jewelry shop owner in Delhi's Karol Bagh area on condition of anonymity told Sputnik, "Asking for proof of tax payments and other identification documents is discouraging buyers".
But the picture is hazy at the retail level. Negative demand in India has created a situation where low quality diamonds could be exported to overseas markets creating a temporary oversupply situation. The impact on production process could create an artificial scarcity in the coming months.
The sales of diamond jewelry plunged by 70 per cent during the wedding season due to the cash crunch. Moreover, the demand is unlikely to revive any time soon as India struggles to dispense enough new notes, say industry experts and shop owners.
“During the cash crunch, diamonds are one of the last things people want to buy. The demand will remain weak for the next six months at least,” said Praveenshankar Pandya, head of India’s Gem & Jewelry Export Promotion Council (GJEPC).
The crisis hit at a time when there were plenty of stones in the retail pipeline or being processed. India’s rough diamond imports between April and November jumped 30.5 percent, while exports of cut and polished diamonds during the period rose 12.2 percent, GJEPC data shows.
"We bought rough diamonds aggressively, expecting a rise in exports and local demand, but now there are no buyers in the market," rued a Delhi jeweler.
