Gujarat Elections: Rough Ride of Surat’s Diamond Industry May Send BJP into Tizzy
Surat (Gujarat): Arya Patidar and Maheshbhai Vaghani were wealthy men until two years ago, with both owning over 100 diamond processing and polishing units in Surat. But high inflation, skyrocketing prices of raw materials, falling rupee, increasing import and export duties, coupled with fear of recession in western markets and sanctions imposed by the United States on Alrosa in Russia — India’s biggest supplier of rough gemstones — in the wake of the Ukraine war have eroded their wealth, and they are now managing fewer than 10 units.
The issue is something that the ruling Bharatiya Janata Party (BJP) needs to worry about.
The European Union, the United Kingdom, the US and their allies have excluded Russia from the Swift international payment system. Alrosa is a Russian partially state-owned diamond mining company. It is the leader in the world diamond mining industry.
The Rs 4,000-crore industry in the port city of Gujarat is losing its sheen because of the “unprecedented” economic shock. It is not just Surat but Ahmedabad has also been feeling the chill. Over a few thousand of the units are either shutting down or reducing production. People carrying the precious gems loose in paper wrappings is a common site in Surat’s diamond markets where the precious stone worth millions of dollars is traded on the streets every day.
“Unable to cope with the rising prices of the rough diamond since the depreciation of the domestic currency vis-à-vis the US dollar, I have had to sharply reduce my operations. I am, at present, running only seven ‘ghantis’ (diamond polishing bench, which accommodates four polishers simultaneously) and that too have not begun functioning so far in this new business year (which in Gujarat starts from Diwali),” said Arya, a resident of Matawadi in Surat’s Varachha Assembly segment.
Why is there such a huge scaling down of the operations? The business, he responded, is no longer the way it used to be.
“The exports have gone to below 60%. There is no demand in the international market because of the feared economic slowdown in the West. The Russia-Ukraine war has taken a heavy toll on the industry. Because of the weakening of the rupee, the cost of rough diamonds has gone too high. And therefore, the profit margin has become too thin. We sell polished diamonds on wafer-thin margins of 2-3%. After paying taxes, labour costs and other expenses, we get almost nothing,” he said, with visible despair on his face.
Traders said not only Russia, but the demand from Europe and the United States too has declined in the recent months because global luxury jewellery retailers such as Pandora, Chopard and Signet, Tiffany & Co refuse to buy diamonds sourced from Russia.
What can the government do boost to the industry in this case? Arya said it should slash the import and export duties, give the industry a special package and recover loans from bank defaulters and pump the money into the market.
Sitting beside him, Maheshbhai Vaghani nodded in agreement. He said though the industry has been through ups and down since the 2008 global financial meltdown, this time it has almost “sunk”.
“As we recovered from the global financial crisis of 2008, the depreciating rupee gave the industry a major blow once again. The
demand from the international market has hit an all-time low. And therefore, the units — which should have begun functioning soon after the Diwali festive season — are shut till now. It has led the manufacturers to drive away skilled workers,” he said.
He said the changing economic outlook of China has affected Hong Kong – a major consumer of Surat’s polished diamonds, and its impact is being felt in Surat. China is the second biggest market for diamonds in the world. The US buys above 60% of all processed diamonds from Surat.
“My business has gone down by 70%, forcing me to close 59 of my 73 units. It’s not just me who is faced with such a situation; everyone here will tell you the same story. Apart from Surat, more than 50% of the units in Ahmedabad have either been shut or have been running half the capacity,” he added.
Surat’s diamond industry is estimated to have an annual turnover of Rs 90,000 crore. It has around eight lakh workers. It is said to have processed 14 of the 15 types of diamonds available in the world.
Had the government been serious about strengthening the industry again, said Karan Patel, it should have found ways to solve the
payment issue immediately as the supply from Russia has shrunk and it is a fully import-based industry.
“Secondly, it would have announced a package for the diamond cutting and polishing industry of Surat and reduced the taxes. But
unfortunately, no such efforts are being witnessed,” said the Surat-based trader who was initially reluctant to reveal his name as he is associated with the BJP and was the deputy chief of the Bhavnagar unit of the party.
The Central government, following the 47th meeting of the Goods and Services Tax (GST) Council held on June 28-29, increased the GST for cut and polished diamonds from 0.25% to 1.5%.
He said the price of rough diamonds has increased by 10-15%, while the demand for polished diamonds has gone down by 5%· The sanctions on Alrosa have caused a cut of around 30% in the rough diamond supply.
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“While small units have been shut, big companies are operating at a much-reduced scale and working hour cuts. A majority of the units have not even opened since Diwali,” he added.
Will Surat get its sheen back? Despite seemingly insurmountable odds, the city has a distinction of dealing with difficulties to keep
thriving as a commercial hub. It has survived repeated attacks by Maratha warrior Shivaji, prolonged sieges, floods, and bouts of
bubonic plague. And it is still called the city of Kubera (the god of wealth).
The slowdown of the industry has fuelled Patidars’ anger against the BJP as the business is majorly dominated by the community. They are challenging the saffron party leaders to hold a door-to-door campaign in Surat, Saurashtra and Banaskantha (a BJP stronghold).
Since they are unhappy with the BJP but don’t trust Congress at the same time, they have found the debutant Aam Aadmi Party (AAP) as a considerable alternative. And perhaps, therefore, the Arvind Kejriwal-led party has been giving a tough fight to the BJP in Surat’s three of the 12 Assembly constituencies — Varachha, Choryasi and Katargam.
Krunal Patel, the owner of a small unit, said, “People are extremely upset and troubled as their livelihood has been in peril. They are waiting to vent their anger against the BJP.”
In the 2017 Assembly polls, the BJP had won all 12 seats of Surat.
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