The Times of India this past weekend was the bearer of somber news from the Surat diamond industry, writing that, "Most of the small and medium diamond manufacturers have literally stopped the manufacturing of diamonds ahead [of Diwali] and are waiting to down their factory shutters early." With Diwali coming on October 19 (compared to October 30 last year), De Beers CEO Bruce Cleaver was optimistic as rough diamond sales in Cycle 6 (ended 31 July) surged to $572 million. “With Diwali being earlier than normal in 2017," he said, "we saw some demand from Indian diamantaires pulled forward from Sight 7. This was due to these customers needing to make rough diamond purchases in sufficient time to complete their polishing before the holiday begins.” Five weeks later this narrative came to fruition, as rough sales plummeted to $505 million in Cycle 7 (also due to Diwali being earlier than normal in 2017), 12% lower than the prior cycle and 21% lower than the year before.
Whether Diwali is coming early or late, however, the Times of India cites recent major defaults in the Indian diamond industry, as well as GST compliance issues as the real culprits. Just five weeks ago, TOI reported, "The diamond industry is in turmoil after two companies went bust and failed to repay bank loans and money borrowed from creditors totalling around Rs 900 crore ($137 million) in the last week. The two companies owned by Gujarati diamantaires have gone bankrupt for debt outstanding of over $137 million. These companies were quite reputed in the global diamond industry and directly connected with the world's largest diamond manufacturing hub in Surat for sourcing and manufacturing diamonds, sources said. Sources close to the development told TOI that Interjewels owes as much as $122 million (Rs 800 crore) to banks and private lenders, while Ankur Diamonds is in debt of over $15.2 million (Rs 100 crore)."
Meanwhile, Govind Khopala, a diamond manufacturer in Katargam, is in deep trouble post-GST, the newspaper writes. In the last two months, his factory employing over 100 workers has processed only 20% of the polished diamonds on hand. "This is going to be the worst-ever Diwali for the industry. Many small and medium units like us are in trouble. It was tough for me to clear the inventory of polished diamonds in last two months, offering heavy discount to the traders. We have to pay 3 per cent GST to the traders, which actually robs our profit margin" says Govind." Another diamond manufacturer, Kailash Viradiya, told them, "From last one month, we have not processed a single stone in the factory. This time around, we are planning to close the factory after October 1."
According to industry sources, polished diamonds change hands several times before being exported from India. GST is imposed at each transaction, leading to blockage of the capital from exports as it attracts payment of taxes and subsequent refund after exports. Many small units do not have cash flow or borrow from banks to support the immediate payment of GST, and have reduced manufacturing, which is evident from declining exports recently.