3War threatens to take sheen off Indian diamond industry, says Crisil

Sanctions imposed by the United States and European nations on Russia in the wake of its aggression on Ukraine is likely to have a direct impact on the Indian diamond industry.

About the Indian diamond industry:

• The Indian diamond industry is deemed to be strongest in terms of its production and processing capabilities.
• India is the world’s largest cutting and polishing center for diamonds, accounting for over 90% of polished diamond manufacturing globally.
• This is attributed to factors such as the easy availability of high skilled labour, cutting-edge technology and lower costs
• It contributed around 19% share in the world’s total exports of diamonds during 2019 and became the top exporting nation for cut & polished diamonds across the globe, according to the ITC trade map.
• As of February 2021, India’s gold and diamond trade contributed ~5% to India’s Gross Domestic Product (GDP) and 14% to India’s total merchandise exports.
• The Government has permitted 100% FDI in the sector under the automatic route, wherein the foreign investor or the Indian company do not require any prior approval from the Reserve Bank or Government of India.
• Market size: In FY21, exports of gems & jewellery stood at US$ 25.30 billion. 
• The Government of India is aiming at US$ 70 billion in jewellery export in the next five years (until 2025), up from US$ 35 billion in 2020.

Impact of Russia-Ukraine crisis on Indian Diamond Industry:

• Russia's biggest diamond miner Alrosa supplies about 30 per cent of the rough diamonds globally and is a critical source for India.
• Rating agency Crisil in a note said sanctions will have a bearing on growth of the diamond industry.
• The sanctions have severed Russia's central bank and two major banks from the SWIFT system.
• While they do not prohibit business with Alrosa, trade settlement has become difficult, which could lead to supply disruptions.