Sarika Malhotra of Business Today takes an in-depth look at the highly depressed state of the Indian diamond manufacturing industry and analyzes what went wrong. If, as she writes, the global diamond trade does not seem to be collapsing, with global growth more or less stable after record sales in 2014, what landed India in crisis? The short answer is that manufacturers and banks alike greatly misjudged the market. "First," she writes, "in recent years, Indian manufacturers misjudged the potential of the market." Sevanti Shah, chairman of Venus Jewels, says, "They went on an expansion spree. Projecting artificial demand, they kept buying more and more roughs and increasing production. This encouraged diamond mining companies to mine more and increase the price of roughs. There was oversupply in the market, which led to the prices of polished diamonds falling and manufacturers bleeding."
Paul Rowley, Executive VP, Global Sightholder Sales at De Beers, agrees: "People in the midstream and downstream (manufacturers and retailers) were growing too quickly, which did not match consumer demand." Banks readily went along with the manufacturers' mistaken estimate, providing the capital for large diamond imports. "It was easy bank finance which enabled the expansion," says Shah. Another major reason is that market growth, though continuing, has not been as rapid lately as it was before, especially in China and India. Like Indian manufacturers, Chinese retailers too appear to have misjudged the market. Several major jewelry chains in Greater China went on an expansion drive from 2011, and are now overextended. The vicious circle of falling demand, lower polished prices and high rough prices has led to near-zero margins for manufacturers, leading to massive debt and frequent defaults.