Indians Worried as Industry Debts Rise Above $2 Billion

Indian gems and jewelry industry officials are concerned that servicing debt could become a serious issue if interest rates begin to climb after a nine percent rise on the year to estimated global debts of $7.5 billion.

The global rise in debt was attributed to a rise in trading activity as well as reflecting extended credit terms.

Although India’s debt situation was offset by strong exports, the Gems and Jewellery Export Promotion Council (GJEPC) is trying to bring the issue under control, saying it wants to see credit cut to 90 days from the current practice of eight to nine months. Other professional bodies connected to the industry have also joined the drive to reduce the credit period.

Sanjay Kothari, chairman of the GJEPC, said: “The Indian gems and jewelry industry is the world’s largest manufacturing center for cut and polished diamonds contributing 60 percent of the world’s supply in terms of value, 85 percent in terms of caratage and 92 percent in terms of pieces. We cannot give credit to developed countries”.

India accounts for around 30 percent of the estimated global cutting center debt of $7.5 billion despite a 22 percent rise in the country’s diamond exports.

Israel is second with cutting center debts of $1.5 billion, followed by New York with debts of $1.2.

Diamond center debt has been an internationally recognized problem for some years. In a major speech at the Antwerp Diamond Conference last November, Peter Gross General Manager of ABN Amro’s International Diamond Division, made particular reference to the issue of Indian debt.

He estimates Indian debts to banks at $2.8 billion and pointed out that some industry watchers believe debt has passed the $3 billion level.

Gross gave four main reasons for growing Indian debt: a substantial increase in the direct procurement of rough diamonds from producers; rapid expansion into jewelry manufacturing has resulted in a longer manufacturing process and much larger stock holdings; manufacturers are increasingly entering directly into major program sales with large retailers, leaving the inventory risk with the manufacturers under just-in-time delivery schedules and consignment programs; and ever-lengthening credit terms to American retailers which are adding to the debt burden.