India’s diamond industry is adopting a wait-and-watch approach in response to the US administration’s announcement of a steep 25% tariff, with penalties, on the country. Suneeta Kaul endeavours to elicit the reactions of the stakeholders to the troubling development.
The Trump administration’s decision to impose a 25% tariff, with additional penalties, on India, starting August 1, has thrown the diamond industry into a tizzy.
The sudden announcement, which was made on July 30, came as a nasty surprise; the industry was hoping that matters would be resolved through bilateral talks, and a more reasonable duty structure would be arrived at. Such was not the case.
Reacting to Trump’s announcement, Mehul Shah of the Bharat Diamond Bourse (BDB), says, “The US is an import-dependent country, and so, the bigger loss is to the American people. This is unexpected. In addition to the 25% tariff, there is also a penalty. As of now, it is not clear what that would translate into. But I say, let us wait and watch. These are bargaining tactics; it is not the last word. Things may change. What is urgently needed is that the BRICS nations should come together, and work together to benefit their respective industries.”
A section of the industry sees a bleak future ahead.
“We were expecting a tariff of 15% to 20%, not 25%,” says Nilesh Chhabria, Finestar Jewellery and Diamonds, adding, “And then there is the penalty. These are arm-twisting tactics being used by Trump. If this becomes the final structure, the industry exports will take a beating. Our exports would come down to zero. There will be no margin. No one is going to pay such a big extra amount. We will just end up clearing our inventory in the US, and that’s it. Our entire business is US-based. While talks are talks are still on, the next two months will be very difficult. Even if a compromise solution is found by the two countries, there will be a period of great concern.”
Others believe that there is a lot of wiggle room to arrive at an acceptable solution.
Sharing his views, Russel Mehta of Rosy Blue says, “I believe there is scope for a compromise. Both the countries are likely to enter into negotiations, and arrive at a more acceptable structure. In case nothing works out, there will be widespread disruption in the industry. The extra cost will have to be shared by manufacturers, retailers and consumers alike. It will be easier for the LGD segment as its cost of material is low, and margins are high.”
Russel Mehta of Rosy Blue
Mehta adds, “In case this tariff rate persists, the industry will suffer a setback for a few years. This is a $75bn industry globally, with the US alone accounting for 50% of the market. India accounts for 12%, China 8% and Japan 6%. Indian diamond exports are mostly US-driven. It will not be possible to look for alternate markets any time soon. As for the consumers, their budget will remain the same. So, either you sell smaller diamonds, or get less profit.”
It is pertinent to note that the US accounted for over 30% of India's total gem and jewellery exports, ($11.58 bn), as per the data of the International Trade Commission.
The apprehension that the entire industry will have to recalibrate is, should the negotiations not yield much, is, thus, not misplaced.
“We are adopting a wait-and-watch approach,” says Ankit Shah of Ankit Gems. “It is difficult to understand why the US would do this. These could just be scare tactics. We also have to keep in mind that 90% of the world’s diamonds are cut in India. And there are tariffs imposed on African producing nations as well. So, where will the diamond jewellery that the US consumers buy come from? Hence, it is quite possible that some solution will be found, once the dust settles.”
Agrees Vipul Sutariya of Dharmanandan Diamonds, “American retailers are heavily dependent on India. This is not beneficial for anyone. Nobody can absorb a 25% hike. And Trump has also announced a penalty. All in all, this will be very difficult to sustain. The governments of both India and the US will have to sit on the negotiating table, and find a solution.”
Vipul Sutariya of Dharmanandan Diamonds
While the last word on the steep tariff hike has not been spoken yet, the industry is apprehensive about the final outcome.
Even if negotiations do yield some positive results, the final tariff is very likely to be higher than the 10% tariff which was imposed in April.
Prior to that, the duty on cut and polished diamonds was zero. Clearly, the industry is in for tough times ahead; it will have to gear up for facing reduced orders, higher prices, and squeezed profit margins.