The country’s diamond capital Surat continues to sparkle a year after the government’s demonetisation move. Demonetisation did deal a temporary setback to some diamond polishing units in Surat, but experts say the industry has regained lost ground.
Demonetisation did deal a temporary setback to some small and medium units in the city, where more than 85% of the world’s rough diamonds are processed. However, industry experts say Surat quickly regained lost ground. Import of rough diamonds in 2016-17 was at $17.08 billion, against $14.04 billion in 2015-16, shows data from the Gems and Jewellery Export Promotion Council (GJEPC), supported by the Union commerce ministry. In fact, the imports in terms of value have been the highest in the last 10 years, according GJEPC. Exports of cut and polished diamonds in 2016-17 have also been higher—at $22.78 billion—against $20.66 billion a year ago.
One of the main reasons Surat’s diamond industry survived the disruption is that about 95% of its clients are international; hence, cashless transactions made things much easier for them, said Laljibhai Patel, chairman of Dharmanandan Diamonds Pvt. Ltd. The company, with a turnover of about Rs6,000 crore, employs close to 7,000 people.
Patel, who shot to fame after he bought a monogrammed suit which Prime Minister Narendra Modi wore during his meeting with US President Barack Obama in 2015 at an auction, said his company’s income increased after Demonetisation as many illegal businesses were forced to close down and their work was passed on to reputed firms like his.
About 35-40% of the rough diamonds processed and polished in Surat are imported by clients and sightholders of global diamond miners including De Beers, Alrosa and Rio Tinto. The rest of the roughs are imported directly from Antwerp, Dubai and African nations.
The 8 November 2016 announcement by Prime Minister Modi came at a time when the Surat diamond industry was closed for Diwali. The industry, which was facing a slowdown at that time due to subdued overseas demand, extended the holidays by about 15 days due to an acute cash crunch. Surat is home to about 4,500 diamond processing units that employ about 500,000 workers.
“The small units faced issues of payments to workers due to cash crunch. This was also due to the fact that there was no proper infrastructure backup for cashless transactions and the worst affected were the diamond units in rural areas of Saurashtra,” according to Dinesh Navadia, regional chairman, GJEPC. While about a hundred-odd firms hold over 50% of the market share and their businesses remained largely unaffected, small units dealing in cash for payment to workers had run into trouble.
According to Navadia, while many small units could not make timely payments to diamond workers (also called ratnakalakars), there was no production loss. On the brighter side, he said that many small firms that were earlier taking orders on others’ books now started their own companies. He said the diamond industry has since been affected by the Goods and Services Tax (GST). The main issue was the 3% GST on business to business trade.
Diamond baron Savjibhai Dholakia, known for giving out cars and flats to employees as Diwali bonuses, said there was some initial impact in the overall diamond market due to Demonetisation.
“For about a couple of months, there was some impact in the market, but overall business has been very good. Our company’s business has gone up since Demonetisation as digital transactions have made things smoother for us,” said Dholakia, chairman of Hare Krishna Exports.
A diamond worker earns Rs 10,000-50,000 a month, and at least 80% of this workforce is employed by the big companies.
“About three thousand to four thousand workers did get affected by Demonetisation in the first two or three months. Some of them, who wanted to be paid in cash, even turned to other professions. But that is all a thing of the past now. The good thing is that all ratnakalakars today get PF (provident fund) and other benefits like a regular employee which many were not getting earlier,” said Jaysukh Gajera, president of Ratnakalakar Sangh, a union of diamond workers in Surat.
Meanwhile, Surat’s scattered and unorganized diamond industry is planning to move into a common address, as construction work on the Surat Diamond Bourse (SDB), an international diamond exchange, is underway.
SDB is a company floated by diamond barons who plan to invest Rs 1.25 trillion to establish it in the next four years, according to the SDB website. After commissioning, SDB would generate additional business worth Rs 90,000 crore annually, it claims.
To be spread across 100 acres with 15 million square feet (sq. ft) of built-up area, SDB will house 10,000 offices for national and international traders. The purpose of the project is to draw buyers from across the world to Surat to plan and execute business transactions at one place. SDB is set to rival Bharat Diamond Bourse, located in the Bandra-Kurla Complex, Mumbai, spread over 20 acres with a total constructed area of 2 million square feet and 2,500 offices of various sizes.