Diamond Trade: Where the fault lies?

Is it time for only the ‘FITTEST’ in the Indian diamond industry? Liquidity crunch is a visible problem plaguing the industry. With stricter norms and reduced credit lines, only the cash-rich companies or less-leveraged businesses will survive. A company that borrows too much money might face bankruptcy or default during a market downturn, while a less-leveraged company might survive the tide.

In the recent past, there have been reports of either bankruptcy or diamond companies defaulting on payments worth crores of rupees. According to sources, a diamond manufacturing company has gone bust. The defaults are reportedly worth Rs. 380 crore. Prior to this, there were reports of another Katargram-based company defaulting on payments worth Rs. 600 crore.

In the last few months, demand has dropped, which has affected the profitability of the companies. Even the prices of polished diamonds fell, which might have had a major impact on the companies that have gone bankrupt. Some of the companies had bought roughs in larger quantities but were put in a spot after fall in prices of polished.

A business going kaput is not new to the diamond industry but the frequency, at which the reports have started coming in, is quite alarming. What is really going wrong in these businesses? The Indian diamantaires are known for their business acumen. Are these diamond companies not been able to adapt to the changing financial scenario? Do these close-knit family businesses need to change the way they do business?

This and many more questions and time to ponder over prevailing situation.