Opportunity may fall into the hands of a few small diamond manufacturers while a majority of them are making a tectonic shift to the realm of larger diamonds

Almost four years ago there were not too many players dealing with big diamonds in India. While we aced cutting and polishing of small diamonds, the majority of the big ones were sent to Israel, Antwerp and New York. But in the recent times, with the advent of large diamond cutting technology, we have witnessed a wave of small diamond manufacturers crossing over to the other side. The industry has warmed up to superior technology, where one can predict the number of diamonds a rough can produce and the percentage of wastage with a scanner. Manufacturers are lapping up this technology and exploring the opportunities with big diamonds for many reasons.

With big diamonds, the turnover is faster. They are relatively easier to sell and they are lesser in number. In the last two years, the prices of smaller diamonds have plummeted. The problem with small diamond manufacturing is the duration of the production cycle – it is very time consuming. This is causing the prices to fluctuate and thereby there is plenty of volatility in the market. Also, with bigger diamonds, certification is never a hassle. Banks readily finance certified diamonds as opposed to smaller diamonds that take time to get certification. At the Sarjan Corporate Luncheon, HKTDC Hong Kong show, the manufacturers vociferously agree that longer the production cycle, the greater they are in for a loss and the only way out of this is to shorten the production cycle, which can be done only to a certain extent.

Even though some believe that the margins with smaller diamonds are better and there is scope for the same in China, a majority of them are moving towards big diamonds. Demonetization has also had its share of impact on the small diamond manufacturers. Nimesh Mehta, Chairman, Diasqua says, “There are a total of 50000 manufacturers who are manufacturing all kinds of diamonds. There a few thousand small diamond manufacturers in this. All the labourers are paid in cash and that is a big issue after demonetization. Either they would consider getting themselves into books or joining larger manufacturers or they would go for larger sizes where this is less labour involved, which would help lessen their cash transaction.”

So then is the solution a blind switch to big diamond business? Sanjay Kothari, Chairman, KGK Group says, “There is room for everybody. The mindset has to change. The small diamond manufacturers will definitely have issues, because they don’t have the skill or the education.” While they are open to change, the transition with demonetization is going to be tougher for small diamond manufacturers as it involves a change in mindset. “With mid level manufacturers, the mindset is already there. They are right in the middle, they may not be organized but apex bodies like GJEPC and BDB are making an effort to open bank accounts and get help from chartered accountants,” Kothari adds.

After the cash crunch, the luster in the diamond industry has been reduced to oblivion. The small diamond units in Surat which account for 90% of the total diamond factories in India shut shop. With smaller diamonds, cash transactions are the medium – from the rough diamonds that are purchased in cash to the cutting and polishing owner who pays his workers in cash.

What does all this mean for the handful of small diamond manufacturers who still maintain their confidence in the business? Not everybody has the purchasing power to invest in big diamonds and the end consumers, by and large still prefer smaller diamonds in terms of jewellery and ornaments. With a good chunk of manufacturers testing waters with big diamonds, this time is perhaps invaluable to a few small diamond manufacturers who can now monopolize the market. The duration of producing small stones may be long and financing from banks might be a headache but the market has cleared up giving the existing small diamond manufacturers a chance to take the plunge. They may after all be consuming a larger slice of the pie.