According to a new report by CRISIL ratings, India’s natural diamond polishing industry is projected to see revenues fall by 25-27% this fiscal year, reaching approximately $12 billion, a low not seen in the past decade.
This drop is primarily driven by weaker demand in key export markets such as the United States and China, a 10-15% reduction in diamond prices due to oversupply, and a growing consumer preference for lab-grown diamonds (LGDs), which are seen as a lower-cost alternative to natural diamonds.
This fiscal year marks the third consecutive year of revenue contraction for the industry, following a 29% decline in the previous fiscal year and 9% in fiscal 2023.
Shifts in Demand and Consumer Preferences
One of the key factors behind the downturn in natural diamond demand is changing consumer behaviour. In the United States, which makes up 35% of India’s diamond exports, demand has slowed significantly, with exports to the US market decreasing by 43% in value over the past two years. In China, which accounts for 28% of India’s diamond exports, consumers are increasingly opting for gold jewellery, viewing gold as a safer asset in uncertain economic times. This shift has further impacted demand for diamonds.
Additionally, the popularity of LGDs has been on the rise, particularly among younger consumers. Faced with limited disposable income, many are turning to lab-grown diamonds, which are up to 90% cheaper than their natural counterparts. The market share of LGDs in the US has grown from 8% to around 25% in value over the past two years.
“LGDs, which resemble natural diamonds, are 90% cheaper. Their market share has increased to about 25% by value in the US from ~8%, two years ago. The share would have been higher, if not for the sharp fall in LGD prices owing to supply outpacing demand. As a result, revenue of natural diamond exporters may continue to face serious headwinds,” said Rahul Guha, Director, CRISIL Ratings.
Supply Adjustments and Market Impact
In response to the drop in demand, India’s diamond polishers have reduced their purchases of rough diamonds and scaled back production. Miners have also cut production and eased inventory pressure, which has helped stabilise prices for both rough and polished natural diamonds. As a result, operating margins are expected to remain steady at 4.5-4.7% in fiscal 2025, according to CRISIL Ratings.
An analysis of 40 companies rated by CRISIL, which account for around one-quarter of the industry, indicates that these adjustments will help stabilise credit profiles over the medium term. With inventory levels expected to reduce by over 10% this year, reliance on external borrowing is also anticipated to decline.
“Due to persistent price fall in recent fiscals, polishers have curtailed purchases and miners have implemented production cuts while offering flexible procurement terms to partially alleviate working capital pressure for polishers. Inventory levels across the value chain are expected to decline, mitigating pricing risks and reducing reliance on external borrowing, over the medium term,” explained Rushabh Borkar, Associate Director, CRISIL Ratings.
