Coronavirus: Gems And Jewellery Exports Tumble At Thrice The Expected Pace On Diamond Hub Shutdown

• Gross exports of gems and jewellery contracted 30.5 percent between December and March, nearly six times the pace of decline of 5.53 percent from April-November, according to Gems and Jewellery Export Promotion Council.
• In March, exports dropped 56.40 percent after a nearly 20 percent slide in February.

Overall, the contraction is due to a fall in diamond shipments after the virus outbreak. From April to February, exports of cut and polished diamonds declined 25 percent and tumbled 40 percent in February alone. Detailed numbers for March have yet to be released.

The industry faced a series of reversals in the last three years, starting with transition to the goods and services tax. The Rs 14,000-crore fraud at Punjab National Bank Ltd. involving celebrated diamantaire Nirav Modi prompted the country’s central bank to crack down on letters of undertaking, a kind of guarantee that was misused by Modi. It also strained working capital lines for the industry. A liquidity crunch after the IL&FS crisis and a higher customs duty only hurt exports further.

Now, a 21-day nationwide lockdown to contain the new coronavirus pandemic has halted work, leaving more than a million workers who cut and polish about 90 percent of the world’s diamonds confined to their homes.

The U.S., Hong Kong and China account for 80 percent of the exports and since these markets are locked down, there is no chance of any business happening, said Dinesh Navadiya, member, Surat Diamond Association; and Gujarat regional chairman for GJEPC.

Outbound shipments plunged across categories. Exports of cut and polished diamonds, coloured gemstones and imitation jewellery contracted 40.92 percent, 64.58 percent and 39.78 percent, respectively, in February. As a result, exports contracted in April-February.

“It’s very difficult to gauge the impact right now. Everything is at a standstill as there is no production happening and even the countries which import our produce are not accepting international flights,” Anoop Mehta, president of Bharat Diamond Bourse, told BloombergQuint . “In areas such as the U.S. and Europe, everything is getting locked down.”

With governments all over the world pumping in money, Mehta is pinning hopes on a fast recovery once the markets open.

“We have received letters from three pubic sector banks granting 10 percent additional credit from earlier assessed limits. For now, it seems to be a reasonable arrangement,” Mehta told BloombergQuint. “Private banks generally follow suit in their lending terms to the gems and jewellery industry.”

Still, if this is adequate depends on the demand. If it’s 30 percent of the previous year’s, then this 10 percent additional limit if fine, according to Mehta. But it’s 60-70 percent, then this limit would need to be enhanced, he said. “We expect the government and Reserve Bank to be flexible depending upon how the situation evolves.”

The RBI has allowed a three-month moratorium on term loans and working capital as part of its measures to help businesses tide over the disruption caused by the pandemic. It also cut the repo rate to its lowest since 2004 and increased its spread with the reverse repo for better transmission.

Sachin Jain, president of Forevermark, part of the De Beers group, said the impact of the central bank’s announcements will really depend upon the size of organisation as the guidelines are very different from a large to a mid- and small-sized players. “De Beers and Forevermark work with all sizes of players. So the impact isn’t really straight forward.”

The lockdown will have an impact on prices, he said. But India is perhaps the only country where there is a sentiment, cultural attached to jewellery, and it’s not necessarily a luxury purchase, according to Jain. “Because of these reasons, when things get back to normal, the pricing may recover faster in comparison to other countries.”

The impact on financials, however, depends on how the situation evolves in the next nine months, he said.

Lakhs Of Workers Suffer

The gems and jewellery industry, according to government’s estimates, employs more than 45 lakh people. Surat, the diamond processing hub of India, alone employs seven lakh, said Navadiya of the city’s diamond association, adding that the industry provides employment to 12 lakh in Gujarat.

“All employers have made a one-month payment so there is not going to be a problem till at least April,” he said. “And as all workers are going to stay indoors and there’s not going to be any other activity, the salary should last for 45 days.”

But Jaysukh Gajera, who heads Ratnkalakar Vikas Sangh, a federation of diamond labourers in Surat, told BloombergQuint workers whom factory owners paid one-month salary comprise only half the workforce of the industry. The remaining 50 percent who work in smaller factories have not been paid, he said.

Finance Minister Nirmala Sitharaman’s promise to support the poor with direct transfers and food security should help workers, especially from factories with under 100 employees, said Colin Shah, vice president at Gems and Jewellery Export Promotion Council. Those who are facing problems, employers will provide food and other basic facilities, he said.

The GJEPC allocated Rs 51 crore under corporate social responsibility funds from its reserves for Covid-19, a government official told BloombergQuint on the condition of anonymity. Of this, Rs 21 crore is given to PM Cares Fund and Rs 31 crore to workers, the person said, adding that allowed workers to stay put and the industry hasn’t lost highly skilled labour force.

Gajera, however, said the government hasn’t done much for bulk of the workers and the package announced by the finance minister covers only 10 percent of them who are enrolled with the Employee Provident Fund Organisation. “Right now, the industry is completely shut down. If the lockdown extends for long, 75 percent of workers will suffer.”

The Indian Express newspaper reported on March 29 that more than one lakh diamond polishers have left Surat. Navadiya said they left because of the fear of the virus and employers are ready to pay them during the shutdown.

Price Drop Causes Uproar

Rapaport, the international pricing benchmark for over four decades, decided not to publish new prices till May 1. That came after its last list published on March 20 showed a 5-9 percent fall in the prices of diamonds, causing an uproar.

While Rapaport Group Chairman Martin Rapaport said the prices reflected the reality in the market, traders didn’t agree. Ronnie Vanderlinden, president at the Diamond Manufacturers & Importers Association of America, questioned how prices could be arrived at without trading during the coronavirus outbreak, reported nationaljeweler.com, an industry publication. It reported that many industry players are exploring an alternative platform for pricing and abandon RapNet, Rapaport’s online listing service.

According to jckonline.com, another diamond industry publication, the price drop led to several companies pulling out their inventory from RapNet in a first such instance in 42 years.

In India, Rapaport pricing is followed for diamonds above 0.28 cents and smaller stones are priced based on market dynamics are followed.

But after the lockdown gets lifted, the domestic industry will consider changing Rapaport, said an office-bearer at an industry lobby on the condition of anonymity as he is not authorised to speak on the matter.

Already 80 percent of the diamonds listed on RapNet have been taken off, another industry executive said on the condition of anonymity. It used to be the closest reference point and now it’s losing ground, he said.