By India’s diamond industry is in the throes of a significant crisis, with exports plunging to levels not seen in over a decade. The contraction of 28% in diamond exports during FY2024 highlights the multifaceted challenges the sector faces, driven primarily by global economic pressures and the surging popularity of lab-grown diamonds (LGDs). As the industry grapples with this unprecedented decline, projections for FY2025 suggest a continued downturn, with exports expected to dip to between $12.5 and $13.0 billion. In this blog, we delve into the factors behind this troubling trend and explore its implications for the future of India’s diamond trade.
Diamond Exports Plummet Amid Global Economic Challenges
India has long been celebrated as a global leader in the diamond cutting and polishing industry, contributing significantly to its export economy. However, the recent contraction of 28% in diamond exports in FY2024 has raised alarm bells across the sector. Analysts attribute this decline to a combination of worsening macroeconomic conditions, such as rising inflation, fluctuating exchange rates, and geopolitical instability, which have dampened consumer confidence and spending.
The economic downturn has been particularly pronounced in key markets such as the United States and Europe, where demand for luxury goods, including diamonds, has diminished. With consumers tightening their belts, Indian diamond exporters are feeling the pinch as orders dwindle. This reduction in demand has led to a significant drop in export volumes, further compounding the challenges facing the industry.
The Rising Threat of Lab-Grown Diamonds
As if the global economic climate weren’t enough, the rapid rise of lab-grown diamonds presents an additional threat to India’s natural diamond exports. Lab-grown diamonds are increasingly favored by consumers for their ethical sourcing and lower price point, which makes them an attractive alternative to traditionally mined diamonds. These diamonds are produced using advanced technological processes that replicate the natural diamond formation, resulting in stones that are virtually indistinguishable from their mined counterparts.
This shift in consumer preferences poses a significant challenge for the Indian diamond industry, which primarily relies on the export of cut and polished natural diamonds. The increasing market share of LGDs is reshaping the landscape, forcing traditional players to reconsider their strategies. As more consumers opt for lab-grown diamonds, the Indian diamond industry risks losing its competitive edge in the global market.
The U.S. and China, which have ramped up their production of LGDs, are emerging as formidable competitors. With their lower production costs and innovative marketing strategies, these countries are capturing the attention of a new generation of diamond buyers, further challenging India’s position as the world’s leading diamond exporter.
Falling Prices and Eroding Profit Margins
The challenges facing the diamond industry are compounded by a steep decline in polished diamond prices. Since April 2022, prices have been on a downward trajectory, reaching an all-time low in August 2024. This decline can be attributed to several factors, including an oversupply of diamonds, declining demand, and changing consumer preferences.
As polished diamond prices fall, Indian exporters are grappling with shrinking profit margins. Once a high-margin product, diamonds are now being sold at significantly lower prices, leading many exporters to operate at a loss. The impact of this price drop extends beyond immediate profits; it threatens the long-term viability of the industry as a whole.
To cope with the pressure of falling prices, many Indian exporters are exploring new markets, diversifying their product offerings, and even shifting towards lab-grown diamonds. However, without a significant uptick in global demand for natural diamonds, it remains uncertain whether these strategies will be sufficient to stabilize the industry.
Outlook for FY2025: A Decade of Decline
Looking ahead, the outlook for India’s diamond industry appears bleak. Analysts predict that diamond exports in FY2025 will fall to decade-low levels, estimated between $12.5 and $13.0 billion. This projection represents a year-on-year contraction of 18-19%, driven by both a decline in export volumes and a softening of average prices.
The ongoing rise of lab-grown diamonds and the uncertainty of global economic conditions suggest that Indian diamond exporters will continue to face significant challenges. While domestic demand for diamond-studded jewelry remains strong, it is unlikely to offset the losses incurred in international markets.
Industry stakeholders and the government must take proactive steps to support the diamond sector through these turbulent times. Initiatives could include promoting India as a destination for lab-grown diamond manufacturing, enhancing trade relations with emerging markets, and investing in technology to improve production efficiency and reduce costs.