Focus on LGDS Will Not Impact Mined Diamond Segment Adversely-Budget 2023

That was not all. With the aim of cutting dependence on imports, she went on to announce a fiveyear grant of Rs 242 crore to IIT Madras to give a fillip to the domestic production of LGD seeds, and the machinery used to create LGDs. “India is a global leader in cutting and polishing of natural diamonds, contributing about threefourths of the global turnover by value. With the depletion in deposits of natural diamonds, the industry is moving towards Lab-Grown Diamonds, and it holds huge promise. To seize this opportunity, I propose to reduce basic customs duty on seeds used in their manufacture.

"To encourage indigenous production of LGD seeds and machines and to reduce import dependency, a research and development grant will be provided to one of the IITs for five years," Sitharaman said.

HUGE IMPETUS TO LAB-GROWN DIAMONDS
Expectedly, the announcement has been received with great enthusiasm by the industry as a whole, which was a major contributor to India’s gems and jewellery exports of $ 39 billion in 2021-22, as per data shared by the Gems and Jewellery Export Promotion Council (GJEPC). The exports of polished LGDs alone were $ 274 million, $ 473 million, $ 637 million and $ 1,293 million in 2018-19, 2019- 20, 2020-21 and 2021-22, respectively, a clear indicator of the importance LGDs are assuming within the industry, and the economy as a whole.

Says Vipul Shah, Chairman, GJEPC, “The Budget is extremely favourable towards the labgrown sector. India is one of the leading exporters of LGDs, and the policy changes announced will further make India number one when it comes to Lab- Grown Diamonds. The recommendations will foster employment opportunities in this sector, as well as facilitate buying state-of-the-art LGD machinery and technology at competitive rates.”

Sitharaman’s measures to boost the LGD sector are sure to bring down the cost of production of labmanufactured diamonds. These measures have been necessitated, in part, by the disruption in the import of rough mined diamonds in view of the Russia-Ukraine conflict The fact remains, however, that even before the conflict, the move towards LGDs had been gaining ground in India, and LGD jewellery had begun to catch the fancy of retailers and consumers, just as it has in the US, the largest consumer of LGD jewellery. The Government too has been lending a helping hand -- in the previous budget, the customs duty on cut and polished diamonds was reduced to 5% from 7.5%.

Welcoming the Finance Minister’s announcement, Pooja Sheth Madhavan, Managing Director and Founder, Limelight Lab Grown Diamonds, one of the major players in the LGD sector, says, “The government, for the first time, has spoken of the identity of Lab-Grown Diamonds artificial or synthetic, but eco-friendly, and bearing the same properties as natural diamonds. This awareness created by the Government is going to instil a huge amount of consumer confidence in Lab-Grown Diamonds, and we will be a seeing a huge shift in consumer preference towards LGDs in India. The Budget is likely to further solidify and grow the entire value chain in the LGD sector, and more LGDs will now be available at the retail level.”

Besides, several retailers are of the opinion that a shift towards LGDs is an idea whose time has come, and that the Government’s measures to boost the sector are a step in the right direction. Explains Nilesh Chhabria, COO, Finestar Jewellery and Diamonds, “The gross exports of polished Lab-Grown Diamonds saw a growth of over 60% in 2022, and that number will get a boost with the Budget announcement. The provisions acknowledging the potential of LGDs are a positive step for the gem and jewellery industry.”

A point to be underscored, when it comes to LGDs, is that their growing popularity is not just due to the attractive pricing. They appeal greatly to millennials and GenZ, as they lend themselves to a far greater range of designs. Besides, young people are attracted to them in view of their eco-friendly tag. Accordingly, discerning retailers, as well as consumers, opine that their journey up the value scale is unstoppable. “The steps taken by the Government regarding LGDs will be good for the fashion jewellery segment,” declares Parag Shah, Director, KISNA Diamond and Gold Jewellery. “This is a step in the right direction. We see the focus on Lab-Grown Diamonds as an overall positive for the fashion accessories segment, and industrial usage,” he adds. Undoubtedly, the Budget announcement will pave the way for India becoming a leader in not only cutting, polishing and finishing rough Lab-Grown Diamonds, but also manufacturing jewellery using LGDs. The government has bestowed legitimacy on the LGD sector, and by doing away with the import duty on seeds used to produce LGDs, it is trying to cut India's mined diamond import bill of a whopping $26 billion. Promoting an ecosystem to produce LGDs domestically is obviously going to cut dependence on the import of roughs, and boost India's capability to supply LGD jewellery to the rest of the world.

IMPACT ON MINED DIAMONDS
While much of the industry has welcomed Sitharaman’s measures to give a leg-up to LGDs, the kind of an impact this, and the overall growth of the LGD sector, will have on the mined diamond segment is worrying sections of industry stakeholders.

India is home to 90% of the world’s diamond cutting and polishing units, making it the largest exporter of diamonds. The country ships diamonds worth $25 billion every year to countries such as China, the US, the United Arab Emirates, and so forth. Surat alone offers employment to more than 800,000 workers in its 4,000 mined diamond cutting and polishing units. It stands to reason that there will be apprehensions regarding the future of the mined diamond sector.

Voicing the concerns of the industry, Dr Saurabh Gadgil, Chairman and Managing Director, PNG Jewellers, says, “The Government has focussed on promoting Lab- Grown Diamonds, as they are seen as a green initiative, through the reduction in basic customs duty on seeds required for LGD manufacture. The kind of an impact this will have on consumers, as well as the natural diamond industry, remains to be seen.” Some sections of diamond jewellery retailers fear that the Government move to prop up LGDs might have an adverse impact on mined diamonds, while others feel there is ample space in the market for the two segments to co-exist and grow. “The announcement of funds for Lab-Grown Diamonds is a cause of worry for jewellers who deal in large-scale natural diamonds,” says Varghese Alukka of Thrissurbased Josalukkas and Sons. However, Ankit Shah of Ankit Gems, Mumbai, thinks otherwise. “The Government has seen reason in pumping in funds into the lab-grown sector, as it will generate employment for many people and will boost exports. This does not mean it is a threat to the natural diamond industry. I believe we can mutually coexist,” he explains.

Then there are those who are of the opinion that the growth of the LGD sector will be beneficial for the entire diamond industry, and that the Budget provisions are not a cause for worry for any sector. “The Budget is a progressive one. The Government has, step by step, focussed on every sector and done what is necessary. Though the Finance Minister has not said anything in particular for the natural diamond trade or the jewellery industry, the reforms that have been announced will give a boost to the overall economy, and the industry,” believes Vipul Sutaria, Dharmanandan Diamonds, Mumbai. That mined diamonds are a different segment, and the growth of the LGD segment will not impact it is a belief professed by several industry players. Amit Pratihari, Vice President, De Beers Forevermark, is of the opinion that natural diamonds exist in a realm of their own. Says he, “Overall, the Budget has fostered a positive sentiment. In fact, under the new tax regime, the Budget has made room for more disposable income, and the purchasing power of consumers will increase. For natural diamonds, we have seen an encouraging trend over the past few months, where consumers are purchasing items which hold meaning and value. “Natural diamonds continue to be sought due to their inherent preciousness. Pricing has also remained steady, and we are optimistic it will become stronger. As customers continue to value what is natural and genuine, diamonds will always be in demand.” Agreeing with Pratihari, Shah says, “Natural diamonds hold their charm for the jewellery segment, given the high resale and emotional values associated with them.”

Sections of mined diamond jewellery retailers are of the opinion that while the Government’s measures to promote the LGD sector are commendable, it could have offered some benefits to the mined diamond segment as well, particularly in view of the worrying trends that ruled the diamond industry in the previous year, with prices see-sawing fairly sharply. “I must add that while LDGs are promising, natural diamonds continue to stand strong. With no significant advantages for natural diamonds, the Budget did leave us hoping for some benefits,” laments Chhabria. Anoop Mehta, President, Bharat Diamond Bourse, prefers to take a broader view, and see the positives of the Budget. “This Budget is a neutral one for our sector, no positives or negatives. Of course, the impetus given to boost technology and digital endeavours will be good for both natural and lab-grown industries,” he says.

That the overall impact of the Budget announcements will be favourable for the industry as a whole, as well as the economy, is a view held by Bhavik Chinai, Group CEO, BVC Logistics, as well. “The reduction in import duty on seeds for Lab-Grown Diamond manufacturing will accelerate India’s rise to a global manufacturing leader in the entire diamond industry, lab-grown, as well as natural,” he opines. “The announcement to develop 50 new airports and helipads is timely – they will make secure logistics significantly faster and safer. The huge infrastructure investment, bumped up to 10,000 crore, up by 33%, will have a positive cascading effect on all industries, provide more employment, and, thereby, increase circulation of money in the economy. For the logistics and jewellery industries, we look forward to implementation of the provisions of this Budget,” he adds. Overall, the measures announced by Sitharaman to give a fillip to the LGD sector have been welcomed by the entire diamond industry. Broad swathes of the sector feel that the growth of the LGD segment, which is sure to result in view of the concessions offered to it, are timely, and will not have much of an impact on the mined diamond segment.