Many diamond merchants fear a default on payments that may run into hundreds of crores of rupees
The falling rupee has taken the sheen off the glittering diamond industry. While gem and jewellery exports have slowed in recent months, the escalating dollar value has put diamantaires in a problem on payments against import of rough diamonds.
From around Rs 52-53 a dollar in April-May, the currency has fallen to
Rs 64-65 a dollar now. “Most diamond players had booked rough diamond
imports at the exchange rate of Rs 50-52 earlier this year. Traders
can’t bear such a huge difference in payments,” said Pravin Nanavati, a
former president of the Surat Diamond Association.
In Surat alone, by an industry estimate, a potential default in payment
of Rs 700-900 crore looms. Further, exports are not picking up due to
the weak economic situation abroad. This has also pushed back
realisation from the sales abroad of polished diamonds and jewellery.
According to insiders, several diamond trading houses from Surat have
failed to make payments to rough diamond merchants in Antwerp.
“Diamond units prefer keeping their inventory ready ahead of the
festive season. Therefore, they go for early purchases of rough
diamonds. Nobody knew the rupee value will fall so significantly in such
a short span. At the current exchange rate, it is almost 10-15 per cent
higher cost that we have to bear for our booking made in April,” said a
unit owner in Surat.
Trader sources say not much of the bank exposure is involved in this,
as most of the funding is through credits from local finance. “Merely 10
per cent is bank loans. Therefore there is less bank exposure but a
default will hamper the entire chain, leading to a cascading effect,”
Rough diamond prices had increased in the first half of the year, while
polished diamond prices have not done so. This makes it difficult for
diamond processors to pass on the increase in cost due to rupee
The industry has high hopes from the coming festival season, including Diwali and Christmas, when sales might pick up.