Financial crisis affects diamond exports in India
By Channel NewsAsia's India Correspondent Smita Prakash | Posted: 21 October 2008 0105 hrs

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SURAT, India: Indian diamond exporters are feeling the heat from the US meltdown, as orders are being cancelled or reduced drastically.

Retailers are hoping that domestic sales will help them tide over the crisis.

Over 700,000 people are directly employed in the diamond trade in this town alone. Some diamond craftsmen in Surat, Western India, are unsure about their jobs.

Usually they get one month paid leave every November, after they have completed Christmas orders for the US and European markets.

This year, their employers have asked them not to come back to work till January as there are not enough orders from the US and Europe, and the domestic market is fickle. The units may remain shut until the situation improves.

A diamond trader in Surat, Praveen Nanavati, said: "At most other factories, the Diwali vacation has begun early and have already closed. We usually have 20-25 days (of) vacation after Diwali. But this time, we might have to extend it till two months.

"As the diamond industry's export is dwindling, there is a decline in demand in the domestic market and even the gold prices have increased. Because of this global recession, the entire diamond industry is feeling the heat."

The US accounts for nearly 40 per cent of India's gems and jewellery exports, which stand at about US$25 billion.

However, in the past six months, there has been a 15 to 20 per cent decline in demand from the US.

Even those who picked up stocks from Surat did not pay up in time and this has resulted in a liquidity crunch.

The festival period has begun in India, and traditionally, Indians buy gold and diamond jewellery during this time of the year.

Diamond traders are hopeful that the domestic demand will pick up pace in the next week when it is supposed to peak during the Hindu festival of Diwali.

Nanavati said: "It was generally expected that during this time of the festive season of Diwali, there would be greater demand. But it might not be so as the gold prices have shot up and the rate of a diamond to dollar has also gone up from 40 to 49 (making it out of reach for most buyers)."

Market watchers are not very hopeful. Indian consumers are price sensitive and are not likely to make impulse purchases in these difficult times.

Diamond exporters said that bulk buyers in the US are unsure about sales of finished products in their own markets and hence have scaled down or stopped purchase from countries like India.

The bearish sentiment in the global market has taken the sheen off the diamond trade.

- CNA/yt