Are we ready for two bourses?

Nearly Rs 3000 crores has been pumped into the much talked about Surat Diamond Bourse (SDB), which will be the world’s single largest complex spread across 66 lakh sq-ft. The bourse, which is said to be completed by 2020, is supposed to be home to 11 towers with 4500 offices of top line diamond companies in diamond business. That’s not all – the bourse will supposedly have deposit vaults, a museum, custom office, diamond club, money transfer desk and housing for all those who are employed and more importantly, it is said to provide over 1.5 lakh jobs. Optimism has been the cornerstone of this industry, which is one of the reasons why nothing shakes this sector quite easily. However, the emergence of SDB has raised quite a few eyebrows, sending them into bewilderment, of whether a second diamond bourse is really necessary given the current scenario. Job cuts are rife. Banks are not showing any signs of supporting the industry. There are cut backs everywhere. Rough prices are becoming dearer while end consumers are not interested in heavy pieces dripping with diamonds anymore. What with all these problems, is it really prudent then to put in so much money on a second bourse, when we have a perfectly functioning one in the country’s financial capital? Vijetha Rangabashyam & Sanjana Parikh analyse

As the project is well underway now and the completion is expected sometime next year, it is certainly trouble in paradise. The possibility that majority of the companies will move to Surat considering their cutting and polishing units are already there was always present, but now it has gotten stronger. Though we don’t know for sure which of the companies and how many of them will make the switch, many of them have already bought offices at SDB. Those who have lobbied for the Mumbai bourse are wondering what this could leave them with.

An Ill Conceived Decision?
Many manufacturers believe that this project should not have happened. The diamond industry has spent billions of dollars to create BDB and now more money has gone into creating SDB and the capital resources could have been channeled into other areas where needed. It could have little impact on the business but considering people moved to Mumbai in search of a better life could be left hanging in midair if the companies decided to make a complete switch. “The property prices from Rs 80,000 has come down to Rs 30,000, imagine the capital loss that people are going through. It will not go on rent. Right now you get Rs 400 per square foot, imagine if the place is half empty, who will rent the space?” asks Shirish Poonglia of Concorde International, who moved to Mumbai from Jaipur 30 years ago. The industry is certainly divided on the creation of another bourse and the common belief is that those who conceived this idea did not think things through. “People who are born and brought up in Mumbai are not really ready to move to Surat. I don’t think they will be able to sacrifice their lifestyle and shift there. Diamond market is gradually decreasing everyday due to liquidity, rough prices etc,” said Senil Shah of Padmavati Exports.

If the bourse in Surat picks up, there will be a complete role reversal, where people from Mumbai may have to travel to Surat on a daily basis or for 2-3 days to conduct business. Even those who have a strong base in Surat could be affected by this as a part of the family lives in Mumbai. “It was not at all necessary and I don’t know why this idea was brought up. Everything was going smoothly here,” says Kerul Parikh of AJ Mehta & Co. The diamond industry in India is filled with lobbyists – the Palanpuri and the Kathiawadi lobbies. BDB is dominated by the Palanpuri folks and some believe that to one up them, the opposing lobby has started the project in Surat. “The entire industry is not supporting it. Because of the ego of 4-5 big houses, the project is coming up and it was not needed at all. Imagine, we don’t have capital to work, we borrow from banks and they are making us put money in infrastructure which is not going to be used. The SDB will lie half empty there and BDB will lie half empty,” added Poonglia.

Cost Matters
It seems like those who have a solid presence in Surat will definitely shift – renting office spaces in Mumbai has always posed problems in the form of high rentals and high overhead costs. The bourse in Surat will not be this expensive and the basic will definitely be cheaper. “It seems like 70 per cent might shift. In order to reduce costs and expenses, it is necessary to develop the SDB. For smaller companies, it could be beneficial as the expenses in Mumbai are exorbitant. If the bourse shifts to Surat, day to day expenses will reduce. It may also improve the lives of employees as they can get a better lifestyle in the same amount of money. The infrastructure costs of Surat is a lot lesser than infrastructure costs of Mumbai. There, people can easily buy a house as compared to Mumbai,” says Manish Jivani of Anand International. The idea behind shifting to Surat is to facilitate mid and small scale entrepreneurs, so that they too can afford to have office spaces. In 2016, the opening of the advance booking for offices was at Rs 6000 per sq-ft which is near to nothing when compared to prices at BDB which rose to Rs. 80,000 to 90,000 per sq. ft during its earlier days. “When the diamond market moved from Opera house to BDB, expenses went up, but in some ways they have come down as well. Insurance premium has gone up but manpower costs have come down. Many major diamond players who deal in big volumes have offices all over the world and most of them are already operating in Surat,” said Mehul Shah, Convener, BDB.

Will the Whole Trade Shift?
There is full probability of the market shifting to Surat. Until now, only cutting and polishing was being done in Surat, but there is a possibility of the city emerging as a trading hub as well. With most people who shifted from Surat to Mumbai some years ago, their families continued to stay in Surat. They would visit Mumbai over the week and go back to Surat during weekends. So shifting for such people would be a blessing in disguise. “About 70 per cent of the trade will shift to Surat. Most families have decided to stay in Surat so they will not mind going back. When trade moves, remaining 30 per cent will continue to stay in Mumbai and keep the market running. Just like when market shifted from Opera House to BDB, 10 per cent continued to remain in Opera House and operate from there. Majority will move to Surat, a few might remain in Mumbai,” said Alpesh Thumar of Thumar Gems.

“There is a very high possibility of Surat Diamond Bourse becoming the main trading hub of India. But it will take a few years to complete the transition. People who have moved from Surat will be happy as they will get to go back to their hometown and stay with their families. Provided all facilities like airport, proper transport, housing., etc are developed, I think the market will move for sure. When bigger companies decide to move, all smaller and medium companies will follow suit,” said Riten Shah of Vaibhav Gems.

“Many companies have multiple offices in different parts of the world like U.S., Hong Kong etc. so there will be no problem in maintaining an office in Mumbai as well as Surat if it is needed. Initially people can keep both offices running, but if they find more scope in Surat they might decide to shut down. It will take at least 3 years to completely move operations to Surat. In this time period, the airport, flights etc will be developed and international buyers will be able to access the city directly. We have bought a space in Surat and will shift there if and when the entire market decides to shift,” said Bharat Lathiya of B Manek.

Impact on BDB
At the moment, no one can say for sure how the new diamond bourse at Surat is going to affect the overall business at BDB. But it is not hard to see that once SDB starts functioning at its optimum level, it would seriously impact business at BDB. One thing that the companies who currently have their offices in BDB can do to offset or mitigate the likely fallout is to have another office at SDB and benefit from the opening of a second diamond trading hub. It may actually spur growth for some companies who have a long-term plan. “SDB will not have an impact on BDB. BKC is the financial hub of India and it is the hub of gems and jewellery sector as well. If you look at BDB, it is not just restricted to diamonds – we have companies who deal in colour stones, jewellery, semiprecious stones – basically everything other than synthetic diamonds is traded here, hence it will still remain an important hub not just for diamonds but also gems and jewellery,” said Mehul Shah.
Mumbai being the commercial and financial hub has its own advantages and BDB in the elite business district of Bandra Kurla Complex has come up as the country’s first diamond trading hub also because Mumbai is the most preferred centre of all business activities, including those related to gems and jewellery. “If the bourse shifts, it will have an impact on the Mumbai diamond industry. When SDB opens it will have a parallel market but Mumbai’s charm will always remain,” said Senil Shah.

The Question of Logistics
Currently Surat does not have an international airport. If the market moves there, how will international buyers visit Surat? Connectivity remains a key issue. “The biggest problem it faces is the lack of international airport so overseas buyer will definitely face problems. But I have heard that they are trying to construct an international airport. So if that is done, buyers will also come and Surat will have an edge. But if international airport doesn’t happen, obviously it will be a problem,” says Kerul Parikh. If the trade becomes robust in Surat, it will definitely have its own customs authority. There have been talks of having flights to Dubai and considering manufacturing is done from Surat all customers visiting from Russia, U.S., Europe, Israel and Belgium could directly visit Surat. “80 per cent of the business happens online these days, nobody needs to go to Surat to buy diamonds. Just buy it online then. In today’s 21st century, physical presence is not required for anything. With so many infrastructural problems: no airport, connectivity, so much distance- it’s a bad idea,” says Poonglia. Mehul Shah believes that as an industry we need to think ahead of times, “I don’t think it should be very inconvenient for international buyers to visit Surat – especially with the bullet train coming and soon Surat will have a fully functioning international airport.”

Prospects for Surat
Over 90 per cent of diamonds in the world are cut and polished in Surat. Over 7 lakh people are employed in this sector, out of which a majority of them are based in Surat. Currently, many merchants take the early morning train from Surat to Mumbai and head back to Surat after a tiring day. Surat though home to manufacturing centers, does not have the infrastructure to facilitate proper trade and the SDB is set to change this. It is expected to generate employment for lakhs of people and also enhance the state of living of the people there because of the opening of schools, hospitals and even five star hotels in and around the bourse. “SDB will allow operation of synthetic diamonds as well – so there will be plenty of scope for synthetic diamonds in SDB. BDB was planned in 1992 and it was opened in 2010 – look at the graph of the businesses – we have grown that much as well. At the beginning of 1992, offices were completely sold out – now we have grown manifold and we need another bourse for sure. I mean look at the growth – yes right now there is recession, but the minute we come out of it, we need the space. You should always think 10-20 years down the line, not short,” said Mehul Shah.

What they Said

SDB will not have an impact on BDB. BKC is the financial hub of India and it is the hub of gems and jewellery sector as well. If you look at BDB, it is not just restricted to diamonds – we have offices who deal in colour stones, jewellery, semiprecious stones – basically everything other than synthetic diamonds is traded here, hence it will still remain an important hub not just for diamonds but also gems and jewellery. SDB will allow operation of synthetic diamonds as well – so there will be plenty of scope for synthetic diamonds in SDB
Mehul Shah, Convener, BDB

The entire industry is not supporting it. Because of the ego of 4-5 big houses, the project is coming up and it was not needed at all. Imagine, we don’t have capital to work, we borrow from banks and they are making us put money in infrastructure which is not going to be used. The SDB will lie half empty there and BDB will lie half empty here. The property prices from Rs 80,000 has come down to Rs 30,000, imagine the capital loss that people are going through. It will not go on rent. Right now you get Rs 400 per square foot, imagine if the place is half empty, who will rent the space?
Shirish Poonglia, Concorde International

SDB and BDB will coexist like NSE and BSE. Anything that is a new facility is helpful to the trade. The target of SDB as well as BDB is to satisfy the members and make sure that the business grows. I take this in a positive way and think it will be healthy for the industry. I myself have not purchased an office space at SDB, but if need be we will look at it from a rental point of view
Vipul Shah, Asian Star

If people shift from BDB to SDB there will be less traffic in the former. The BDB market will still survive, but there will be a division of market. The smaller goods market might shift to Surat but the larger sizes can remain in Mumbai. While there is one flight to Surat from Sharjah giving its airport the international status, it may be inconvenient to international buyers as the number of flights which service Mumbai is more than Surat. I think companies will have to decide where they want their offices: Mumbai or Surat, I don’t think SDB was required.
Ankit Shah, Ankit Gems

People who are born and brought up in Mumbai are not really ready to move to Surat. I don’t think they will be able to sacrifice their lifestyle and shift there. Diamond market is gradually decreasing everyday due to liquidity, rough prices etc. If the bourse shifts, it will have an impact on the Mumbai diamond industry. When SDB opens, it will have a parallel market but Mumbai’s charm will always remain
Senil Shah, Padmavati Exports

It seems like 70 per cent might shift. In order to reduce costs and expenses, it is necessary to develop the SDB. For smaller companies, it could be beneficial as the expenses in Mumbai are exorbitant. If the bourse shifts to Surat, day to day expenses will reduce. It may also improve the lives of employees as they can get a better lifestyle in same amount of money. The infrastructure cost of Surat is a lot lesser than infrastructure costs of Mumbai. There, people can easily buy a house as compared to Mumbai
Manish Jivani, Anand International

It was not at all necessary and I don’t know why this idea was brought up. Everything was going smoothly here. The biggest problem it faces is the lack of international airport so overseas buyer will definitely face problems. But I have heard that they are trying to construct an international airport. So if that is done, buyers will also come and Surat will have an edge. But if international airport doesn’t happen, obviously it will be a problem
Kerul Parikh, AJ Mehta & Co

Very high possibility of Surat Diamond Bourse becoming the main trading hub of India. But it will take a few years to complete the transition. People who have moved from Surat will be happy as they will get to go back to their hometown and stay with their families. Provided all facilities like airport, proper transport, housing etc are developed, I think the market will move for sure. When bigger companies decide to move, all smaller and medium companies will follow suit
Riten Shah, Vaibhav Gems

Many companies have multiple offices in different parts of the world like U.S., Hong Kong etc. so there will be no problem in maintaining offices in Mumbai as well as Surat if it is needed. Initially people can keep both offices running, but if they find more scope in Surat they might decide to shut down the Mumbai office. It will take at least 3 years to completely move operations to Surat. In this time period, the airport, flights etc will be developed and international buyers will be able to access the city directly. We have bought a space in Surat and will shift there if and when the entire market decides to shift
Bharat Lathiya, B Manek