IDEX India managing director Yaron Barzilay caught up with Praveenshankar, the recently elected chairman of the Gem and Jewellery Export Promotion Council (GJEPC), and asked him about issues facing the Indian diamond industry.

 

Yaron Barzilay: ALROSA’s management team recently visited India, can you say more about what was discussed?

 

Praveenshankar: The ALROSA team was very happy with the facility offered to them at our Special Notified Zone (SNZ) in Bharat Diamond Bourse, and they have conveyed their desire to enhance business with India. Procuring roughs have been an issue for small players here because of travelling cost and other expenses. Since the rough diamonds can be displayed here, we expect they will as of now procure roughs on a regular basis from miners directly. We have also asked ALROSA to supply large stones to manufacturers who are competent in cut and polishing of larger stones.

 

Another point of discussion was the generic marketing of diamonds as a category. This has taken its toll on the growth of the diamond business. We believe in a generic promotion across the world – not just India – as it is only 10 percent of the global market. We are hopeful that all the stakeholders from the industry will support the DPA and soon get see some activities for the promotion of diamonds.   

 

YB: What is the latest on the GJEPC negotiations with the Indian government?

 

PS: The industry had drawn the attention of the Government of India to the existing trade deficit in this sector and has highlighted key suggestions to decrease the gap before the 2016 Union Budget, such as the introduction of a presumptive taxation scheme for the diamond industry, inclusion of gems and jewellery sector under 3 percent, interest subvention scheme and merchandize exports from India scheme,

bridging the 2 percent import duty gap between gold bars and gold dore bars to ¼ percent. We also pushed for the re-starting of the replenishment scheme, thus providing huge relief to the jewellery sector

 

But we were distressed to find that no specific attention had been paid to address the ease of doing business considering that gem and jewelry exports account for a major share in the world market. We expected that the government would announce measures to facilitate the export-oriented industries and create an environment of ease of doing business.

 

On the contrary, the government imposed a 1-percent excise duty on jewelry (other than plain silver jewelry). Hence, council is now of the opinion that the government needs to withdraw it immediately.

 

YB: What other issues, such as bank credit, are pressing in the Indian diamond industry at the moment?

 

PS: Banks are hardly financing any SMEs currently. They are insisting that SMEs go for corporatization to avail the bank financing at liberal norms. The reasons behind this are several fold: In the opinion of the council the parameters of the credit rating agencies are not consistent and somewhat not transparent and so, rating of the SMEs by such agencies are questionable; mostly banks are dependent for financing the diamond industry on ratings given by such credit rating agencies; banks are also asking for more than 100 percent (sometimes as much as 150 percent) collateral from the SMEs against financing, if the company somehow qualify the rating criteria.

 

The council has been putting forth its concerns with the banks, which include; discussing with bankers to evolve their own due diligence mechanism and consider their (banks) own internal rating of such SMEs for sanctioning limits; trying to convince the banks to give the percentage of collateral discount to the corporatized company; attempting to pursue with IBA to support our contention that based on RBI directive for bearing by the banks of the policy premium for whole turnover, they should continue to bear the post-shipment premium in case of individual turnover ECIB policies. The council is planning to organize the Annual Banking Summit very soon, to mitigate the other ongoing banking and financing issues of the industry, including SME financing.

 

YB: How do you assess where the industry is at in 2016?

 

PS: There are a number of challenges now – the smooth ride is over. We need to work hard to bring back the kind of business and profit that we used to make in the past.

 

The year 2015 was a difficult one for the industry, as we witnessed a decline in exports throughout the year. Taking the current situation into consideration, it is very difficult to forecast what the scenario will be in 2016. From April to November 2015, the overall gross exports of gems and jewellery stood at $28.09 billion, which represented 5.23-percent decline compared to $29.65 billion over the same period in the previous year. At this rate, the overall exports of gem and jewelry for 2015-16 will struggle to reach the total exports of $40 billion in 2014-2015.

 

YB: Can you explain more about the tenders at the IDTC?

 

PS: IDTC is doing tenders and showing goods, which is an interesting development. It would also be good if we could see large stones here that are not solely sold for the purpose of tenders.

Major mining companies have already booked their space for displaying rough diamonds at SNZ. From November 2015 to December 2016, almost half a year has been booked by miners: Rio Tinto, De Beers, ALROSA and Dominion.

We are glad to hear that miners are satisfied with the facilities and overall services offered by IDTC. I am happy to note that DTC and Rio Tinto Diamonds has got 300 customers and 150 customers respectively in their first auction at SNZ, and most of these customers were small manufacturers which proves that we are moving in the right direction.

 

YB: Can you say more about the proposed jewelry park in Mumbai?

 

PS: Apart from SEEPZ (Santacruz Electronics Export Processing Zone), jewelry manufacturing in the city is very dispersed – without a centralized place for manufacture. Providing common facilities for these manufacturers is not possible. SEEPZ is only for exports, but this idea is for the domestic market. If we have common centers for casting, banks, gold suppliers, silver suppliers and stone suppliers then it upgrades the potential.

 

We are considering a complex of 25 acres to create this jewelry park. We have models where we would encourage small manufacturers to participate. The GJEPC will be involved, but we will create a company to manage it. The commerce secretary (Rita Teaotia) came here to support advancing the project, which will also be carried out in conjunction with the Maharashtra government.

 

YB: Can you respond to some rumours about the development of a new convention center? Will the IIJS move in 2017?

 

PS: I don’t think we’ll move until 2018 at least – and I’m not sure if it will be sufficiently large enough. We have to see how the planning works out, as we are still waiting for details. It’s likely that we will move the IIJS, but it’s too soon to begin negotiations on this. If we have a first-class facility next to the Bharat Diamond Bourse it would be ideal.

 

YB: Do you see diamonds becoming a commodity?

 

PS: Diamonds don’t really fall in the “commodity” category. Finding a diamond is not easy – gold and copper is easier to find and extract. There is a need for more regulation of price structures, certification systems and quality parameters for small diamonds.

 

YB: Any final thoughts?

 

PS: The producers need to listen to associations like the GJEPC and others, and work with them more so that supply and pricing can become better coordinated. It should be relatively easy to maintain confidence in diamonds because it is not a perishable item. That includes not creating artificial markets, either through oversupply, because that leads to a loss of confidence throughout the pipeline or undersupply, which leads to unnecessary and unsustainable speculation in diamonds.

 

We are the leaders in diamond manufacturing in the world. We are committed to promotion, the highest standards of transparency and are prepared to work with all associations, WFDB and IDMA etc. We want to work with the industry, to do joint promotions and exhibitions, in order to help solve the industry’s problems.