Reviving & Reforming Surat Diamond Industry

The last time Diamond World visited Surat, the diamond industry was waking up to the adverse impact of the economic slowdown. Six months later, the Rs. 45,000 crores Indian diamond industry is gradually gaining momentum. The diamond fraternity is optimistic about the future. Yet caution is still in the air. In a recent visit to this vibrant city, Diamond World endeavoured to find out the progress of revitalization of the Industry.
Reviving & Reforming Surat Diamond Industry

Recession & Aftermath :

According to RBI, diamond industry in Gujarat accounts for 72 per cent of the world's processed diamonds and 80 per cent of India's diamond exports. However, with the onset of the global recession in September 2008, the Surat diamond industry was badly hit and an estimated 1250 manufacturing units shut shop. There was uncertainty everywhere. According to Govind Dholakia, Chairman, Shree Ramkrishna Export, “During the recession there was panic in the industry. Many people were sceptical about running their businesses on regular lines and incurring losses of up to 20, 25 or even 30 per cent. Playing a wait and watch game, they reduced their production. With that their business disintegrated.”

A year later, things have changed. Talking about the current economic scenario, Sanjay Shah, Vice Chairman, Gold Star India Pvt. Ltd. is very candid when he says “We have seen a lot of activities happening in India. Business has not picked up as expected. People are going out of their way in buying rough and paying unrealistic prices. In addition, they are also producing diamonds like crazy. I think it is not the right thing to do as the world is still not completely through with the recession. If this trend continues, we may see another downfall for our industry.”

Chandrakant R Sanghavi, Chairman of Sanghavi Exports International Pvt. Ltd. and the Gem & Jewellery Export Promotion Council (Gujarat Region) says, “Currently manufacturers have been doing fairly well. However, there is no certainty that businesses will do well in the long run. We have to wait and watch.”

However, some are positive about the diamond industry making a comeback to normalcy in the near future. Rohit Mehta, President, Surat Diamond Association avers, “During the peak time of recession, the Surat diamond industry was working at 40 per cent capacity with limited hours and manpower. But between June and August 2009, around 25 per cent of the closed units have reopened. It is a good sign. As of now, we are seeing a 55 per cent revival of industry. With the increasing demand for diamonds pouring in, I am expecting at least 75 percent of the diamond industry to revive after Diwali.”

Speaking on behalf of his fellow workers, Deepak Chikalia, a planner at C. Mahendra says, “Last Diwali, there was a depression in the industry. We were all thinking whether we will have work? Throughout our lives we have been working in the diamond industry. So what were we to do? By God’s grace the market has picked up in a short period. We are happy now and hope that the market will grow.”

Labour Exodus :

The diamond industry is one of the most labour-intensive industries in India. The industry employs more than an approximate 700,000 workers and an estimated 2.5 million people are indirectly associated with this sector.

During recession, while many big companies did not retrench their employees, the closure of many other manufacturing units – small, medium or big – rendered so many artisans jobless. Besides diamond workers left their jobs to take up agriculture in their native Saurashtra or turn to other industries such as embroidery, etc. However, today most of them are expected to return to the diamond industry after Diwali. This is confirmed by Suken Shah, Director, C. Mahendra Exports Ltd-. who says, “Many of the workers are returning after Diwali. We have been getting a lot of phone calls from the workers expressing their desire to come back to work here.”

While there is an urgent requirement for highly skilled workforce in the diamond industry, it would take around four to six months before the workers would return to their former profession. Rohitbhai says, “Anyone associated with the diamond industry normally would be uncomfortable working in any other industry. However, the workers employed elsewhere would like to complete their current job commitments before coming back, which is good. So by the end of this year, we expect a return of 90 per cent plus workforce.” But there are other reasons as well. Sanjay Shah says, “The artisans are waiting and watching the industry. They do not want to come back to the industry just for two or three months. They would like to have jobs that provide security in the long run. ”

Better Remuneration :

For those who remained in the industry, it became imperative to work at half or nearly one-fourth their normal wages during the three months of peak recession. However, with diamond business picking up now, workers are getting their normal pay package if not better than before the recession period.

Currently there is a shortage of workforce everywhere. Sukenbhai quotes, “If you went to each and every diamond factory in Surat, you would find notice boards offering employment prominently displayed.” This shortage could help workers generate a better income than before.

But are manufacturers ready to pay? Today the prices of rough are less than the price of polished diamonds. As the manufacturer would be earning a little more margin than before, he could afford to pay more for labour depending on his labour capacity and strength.

Talking of his remuneration

  • Deepakbhai says, “Prior to the recession, I was getting Rs. 25,000. During the recession my salary was cut by 30 per cent. However, now it is okay.”

    Besides better salaries, artisans have also benefitted in terms of additional training. Most of the companies have offered the workers training in other departments as well in order to keep the workers engaged. This has also helped the workers in increasing their productivity and claim better pay.

    Post recession, there has been a demand for high valued diamonds from .3 pointers and up. In addition there has been a shift in production from quantity to quality. So this influences the worker’s salary which is given per piece based on his expertise to produce high quality diamonds.

    Decrease in Terms of Credit :

    One of the repercussions that came to light when evaluating the impact of recession on the diamond industry was the high terms of credit. The average credit period normally ranged from 180 to 270 days. During the economic slowdown, there was a situation when people had no money to repay even after a year. Now there is a change in terms of credit.

    Now people have understood that even if the credit is good, it is for a limited period of time. If the credit oversteps its period, then it can become dangerous and lead to a dampening effect on the whole industry. People have realised that if they do not receive the payment then there is no meaning of having hoards of stock in one’s cupboard. Now people have resorted to the mode of zero terms payments. Pay for the goods and take the stock. Chandrakant Sanghavi explained, “The terms of payment have been reduced only for solitaire diamonds. However, for stars and melees it is yet to happen.”

Ensuring More Liquidity :

Following the need to decrease the terms of credit, was the realisation of the dearth of liquid cash in the industry. There was disequilibrium in the existing inventory and liquidity in many of the manufacturing companies. At one time top diamantaires had crores of rupees worth of diamonds in their stock but not enough liquid cash to pay for labour during the slump. People have realised the disastrous impact of the entire anomalous situation. Now they have started thinking of keeping less stock but remain high on liquidity in order to maintain the peripheral activity of the industry. With the decrease in terms of credit, there can be an improvement in cash flow.

Procuring Rough :

Previously companies used to purchase rough for six months at one go. In addition the mining and distribution of diamonds was controlled by few players worldwide. As a result prices of rough went over the roof. However, today countries prefer their local mining companies to have an upper hand in the mining operations. This has led to volatility in prices.

With the prices being highly volatile, one needs to procure rough according to the current demand. This helps in maintaining equilibrium between the stock and liquid cash in the company. Also the manufacturer can benefit additionally from procuring rough when the prices are lower.

Exploring New Markets :

While exports to the US prior to the slowdown amounted to 60 per cent, another 20 per cent of the diamonds were exported to Europe and the remaining to other parts of the world. However, with the recession in US, the demand for diamonds has been hit. As of now there is demand for diamonds from Far East, Middle East and Europe.

Online Trading :

During the past few years most of the manufacturing companies have turned to online trading for international exports. Many of the diamantaires say it helps in boosting their business. Sukenbhai says, “Most of the demand which we get is online. One does not see the diamond physically. From certification of GIA or IGI, the person can understand the quality of the diamond. Today when I turn on my laptop in the morning, I can see a list of demands waiting for my attention. My business has doubled than what it was a few years back.”

Other Lessons Learnt :

Govindbhai reveals, “The most important lesson that I learnt from the recession is always to keep a cool head and never to panic. We need to think of what is best for the company in troubled times.”

Chandrakant Sanghavi says, “There should be enough profit margins to run a successful business.”

This point is endorsed by Sanjay Shah who also talks about the need for healthy competition between players in the industry as well as avoiding the imprudent usage of one’s own finances and stock.

Need for Improvement :

The Surat Diamond Association has felt that the Ministry of Commerce should provide benefits to the highly labour-intensive diamond industry and include it under the list of labour intensive industries affected by recession. As 8 out of 10 diamonds in India are cut and polished in Surat, there is a strong need for Surat to be declared an international trading hub of rough diamonds. Also infrastructure such as airports needs to be reworked upon to ensure that Surat becomes a hub.

On the whole this festive season has brought good news. In the wake of a sudden economic recovery in some parts of the world, there is sudden demand for diamonds and diamond studded jewellery for the coming Christmas and Valentine’s Day. The artisans in the Surat diamond industry are working overtime and getting a short festive break of a week or fortnight. So once again Surat is all set to take its top spot as the leader in cutting and polishing the hardest thing on earth – a diamond.

Mahidharpura Vibrant again !

Mahidharpura is Surat’s spot trading centre for diamonds. When Diamond World visited the venue last time, it bore a desolated look. Today the area is once again crowded with traders at doing business their Othla’s. That leaves hardly any place to stand. One could not miss the vibrancy at this market. Indeed Surat as India’s Diamond Capital has come to life once again!

Mohandas, a broker by profession, who was on his way home after selling all his goods, believed that the market is surely improving. When asked about how business was faring, one trader said, “Since six months, we have been doing good business. I don’t think that recession will return. Diamonds are forever!”

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