A PROJECT REPORT ON

“STUDY OF MARKET POTENTIAL FOR EXPORT OF

DIAMONDS FROM INDIA”

FOR THE PARTIAL FULFILL MENT

OF

POST GRADUATE DIPLOMA IN FOREIGN TRADE

UNIVERSITY OF PUNE

2009-2011

SUBMITTED BY

NIKHIL TAGADE

SINHGAD BUSINESS SCHOOL-MATRIX

PUNE

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 CERTIFICATE

This is to certify that project titled “STUDY OF MARKET POTENTIAL FOR

EXPORT OF DIAMONDS FROM INDIA” bonafide work carried out by
NIKHILTAGADE student of PGDFT of MATRIX BUSINESS SCHOOL,
PUNE for fulfillment of PGDFT course of University of Pune.

He has worked under our guidance and direction. His work is found to be
satisfactory and complete in all respect.

Sr. Director Project Guide

J.N. POL Shantnu Jahagirdar

Date: Date:

Place: MBS, PUNE Place: MBS, PUNE

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3
 ACKNOWLEDGEMENT

This project report could not have been completed without the guidance of our founder
Secretary Mrs. Shilpa Kulkarni, and project guide Prof.Shantanu Jahagirdar.

I express my sincere thanks and gratitude to the above stated persons who have helped
me directly and also to those who have indirectly helped me.

Once again I express my gratitude to above stated persons for their kind Co-operation.

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 INDEX

Serial
Contents Page No.
No.
1 CERTIFICATE 02

2 ACKNOWLEDGEMENT 03

3 INDEX 04

4 OBJECTIVES 05

5 METHODOLOGY 06

6 INTRODUCTION 07

7 FINDINGS 09

8 ANALYSIS 65

9 CONCLUSION 66

10 LIMITATIONS 66

11 BIBIOLOGRAPHY 68

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OBJECTIVE

 To get broad awareness of Market Potential for Export of Diamond.

 To study the problem during the Diamond Export.
 To know the nature of Diamond Export Procedures.
 To identify foreign trade of Indian diamond industry.

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METHODOLOGY

Research in common parlance refers to a search for knowledge one can also define
research as a scientific and systematic search for pertinence information on a specific
topic. In fact research is an art of scientific investigation.

Herber Macloskey define “survey” as survey is a procedure in which data is

systematically collected from population or a sample there of through some form of
direct solicitation. Such as face to Café Interview, Telephone Interview, Questionnaire.

Research Method used for the study is survey method and observation method. This is
also important techniques use in science research.

Secondary Source:-
↔ Reference Books
↔ Internet
↔ Periodicals
↔ News Paper

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INTRODUCTION

INDIAN DIAMOND INDUSTRIES:-

An important emerging sector of Indian economy, gem and jewelry is a leading foreign
exchange earner for the country. The Indian jewellery market, which is estimated to be
US$ 13.5 billion in fiscal 2006-07, accounts for 8.3 % of the global jewellery sales.

The increase in purchasing parity of the middle class and surging income levels have
resulted in consumption growth of gems and jewellery by about 11 % in the 5 year
period preceding 2006-07. It also contributes over 15 % of the total exports of country
and provides employment to 1.3 million people directly and indirectly.

The two major segments of the gem and jewelry industry in India are gold jewellery
and diamonds. The contribution of gold jewelry is about 80 % of the total jewelry
market, with the balance comprising fabricated studded jewelry, which includes
diamonds as well as gemstone studded jewelry.

Indian jewelry sector is well supported by Government policies and the banking sector,
with around 50 banks providing about US$ 3 billion credit to the Indian diamond
industry. In addition, the country is expected to have a diamond bourse soon.

HISTORY

Jewellery has been an integral part of the Indian culture and civilization since ancient
history. They were in demand and fashion since ancient civilizations as Harappa and
Mohanjodaro. Made out of variety of materials, jewelry can be adorned to highlight
almost any part of body. The industry is a result of perseverance and hard work. After
India became independent in 1947, for several years, the several years, the nation’s
economy was in the depression. Several views for business and commerce opened up as
new policies came into place, journey towards progress and development also began for
the diamond industry.

Currently, India is the world’s largest diamond processing (cutting and polishing)
country with around 1 million processors treating over 57 % of the world’s rough
diamonds by worth. According to recent reports, 11 out of 12 diamond (stones) set in
jewelry are cut and polished in India. Processing is done on rough diamonds in a
complete range of sizes and qualities, including stones larger than 10 carats.

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In terms of carat, India's contribution in this sector is about 80 % of the global market.
Employing over 90 % of the global diamond industry workforce, the country also
accounts for about 90 % of the volume of diamonds processed in the world.

FINDINGS

The gems and jewellery sector can be categorized into the following sub-sector based
on characteristics, processing techniques, preciousness in terms of price range and
marketability.

 Gemstones- Diamonds and colored stones

 Jewellery- Plain Gold, Studded, Silver, Costume

 Pearls

Over the years, global markets have been impacted by several developments like falling
trade barriers, increasing competition, changing customer preferences and
developments in technology in several areas. The global Jewellery industry is being
transformed by a few key trends such as:

 Increasing competition among top producing countries.

 Emergence of different materials – different alloys within gold, as well as non-

gold Jewellery.

 Emergence of new manufacturing techniques.

 Requirement of stricter quality norms.

INDIA IS A LEADING PLAYER IN THE GLOBAL GEMS AND JEWELLARY

MARKET:-

The gems and Jewellery industry occupies an important position in the Indian
economy. It is a leading foreign exchange earner and also one of the fastest growing
industries in the country.

The two major segments of the sector in India are gold Jewellery and diamonds. A
predominant portion of gold Jewellery manufactured in India is consumed in the
domestic market. In diamonds, however, a major portion of rough, uncut diamonds
processed in India is exported, either in the form of polished diamond or finished
diamond Jewellery.

DIAMOND :-

Diamond has been a source of fascination for centuries. They are the hardest, the most
imperishable, and the brilliant of all precious stones. The word “diamond” comes from
the Greek word adamas, meaning “unconquerable”.

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HISTORY

Diamonds are thought to have been first recognized and mined in India (Golconda
being one of them), where significant alluvial deposits of the stone could then be found
along the rivers Penner, Krishna and Godavari. Diamonds have been known in India for
at least 3000 years but most likely 6000 years.

The earliest written reference can be found in the Buddhist text Anguttara Nikaya and
in the Sanskrit text Arthashastra, which was completed around 296 BCE and describes
diamond's hardness, luster, and dispersion. Diamonds quickly became associated with
divinity, being used to decorate religious icons, and were believed to bring good
fortune to those who carried them.

Ownership was restricted among various castes by color, with only kings being allowed
to own all colors of diamond.

In February 2005, a joint Chinese-U.S. team of archaeologists reported the discovery of

four corundum-rich stone ceremonial burial axes originating from China's Liangzhu
and Sanxingdui cultures (4000 BCE–2500 BCE) which, because of the axes' specular
surfaces, the scientists believe were polished using diamond powder.

Although there are diamond deposits now known to exist close to the burial sites, no
direct evidence of coeval diamond mining has been found: the researchers came to this
conclusion by polishing corundum using various lapidary abrasives and modern
techniques then comparing the results using an atomic force microscope. At that scale,
the surface of the modern diamond-polished corundum closely resembled that of the
axes; however, the polishes of the latter were superior.

Diamonds were traded to both the east and west of India and were recognized by
various cultures for their gemological or industrial uses. In his work Naturalis Historia,
the Roman writer Pliny the Elder noted diamond's ornamental uses, as well as its
usefulness to engravers because of its hardness.

It is however highly doubtful that Pliny actually meant diamonds and it is assumed that
in fact several different minerals such as Corundum, Spinel, or even a mixture with
Magnetite were all referred to by the word "adamas". In China, diamonds seem to have
been used primarily as diamond tools for engraving jade and drilling holes in beads.

Archaeological evidence from Yemen suggests that diamonds were used as drill tips as
early as the 4th century BCE. In Europe, however, diamonds disappeared for almost
1,000 years following the rise of Christianity because of two effects: early Christians
rejected diamonds because of their earlier use in amulets, and Arabic traders restricted
the flow of trade between Europe and India.

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Diagram of old diamond cuts showing the evolution from the most primitive (point cut)
to the most advanced pre-Tolkowsky cut (old European)

Until the late middle Ages, diamonds were most prized in their natural octahedral state,
perhaps with the crystal surfaces polished to increase luster and remove foreign
material. Around 1300, the flow of diamonds into Europe increased via Venice's trade
network, with most flowing through the low country ports of Bruges, Antwerp, and
Amsterdam. During this time, the taboo against cutting diamonds into gem shapes,
which was established over 1,000 years earlier in the traditions of India, ended allowing
the development of diamond cutting technology to begin in earnest. By 1375, a guild of
diamond polishers had been established at Nuremberg.

Over the following centuries, various diamond cuts were introduced which increasingly
demonstrated the fire and brilliance that makes diamonds treasured today: the table cut,
the briolette (around 1476), the rose cut (mid-16th century), and by the mid-17th
century, the Mazarin, the first brilliant cut diamond design. In 1919, Marcel Tolkowsky
developed an ideal round brilliant cut design that has set the standard for comparison of
modern gems; however, diamond cuts have continued to be refined.

EXPLORATION DIAMOND DRILLING

Exploration diamond drilling is used in the mining industry to probe the contents of
known ore deposits and potential sites. By withdrawing a small diameter core of rock
from the ore body, geologists can analyze the core by chemical assay and
conduct petrologic and mineral logic studies of the rock.

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Surfacing

Schematic diagram of a volcanic pipe

Diamond-bearing rock is brought close to the surface through deep-origin volcanic

eruptions. The magma for such a volcano must originate at a depth where diamonds can
be formed—150 km (93 mi) or more (three times or more the depth of source magma
for most volcanoes). This is a relatively rare occurrence. These typically small surface
volcanic craters extend downward in formations known as volcanic pipes. The pipes
contain material that was transported toward the surface by volcanic action, but was not
ejected before the volcanic activity ceased. During eruption these pipes are open to the
surface, resulting in open circulation; many xenoliths of surface rock and even wood
and fossils are found in volcanic pipes. Diamond-bearing volcanic pipes are closely
related to the oldest, coolest regions of continental crust (cratons). This is because
cratons are very thick, and their lithosphere mantle extends to great enough depth that
diamonds are stable. Not all pipes contain diamonds, and even fewer contain enough
diamonds to make mining economically viable.

The magma in volcanic pipes is usually one of two characteristic types, which cool into
igneous rock known as either kimberlite or lamproite. The magma itself does not
contain diamond; instead, it acts as an elevator that carries deep-formed rocks
(xenoliths), minerals (xenocrysts), and fluids upward. These rocks are characteristically
rich in magnesium-bearing olivine, pyroxene, and amphibole minerals. which are often
altered to serpentine by heat and fluids during and after eruption. Certain indicator
minerals typically occur within diamantiferous kimberlites and are used as
mineralogical tracers by prospectors, who follow the indicator trail back to the volcanic
pipe which may contain diamonds. These minerals are rich in chromium (Cr) or
titanium (Ti), elements which impart bright colors to the minerals. The most common
indicator minerals are chromium garnets (usually bright red chromium-pyrope, and
occasionally green ugrandite-series garnets), eclogitic garnets, orange titanium-pyrope,
red high-chromium spinels, dark chromite, bright green chromium-diopside, glassy
green olivine, black picroilmenite, and magnetite. Kimberlite deposits are known as
blue ground for the deeper serpentinized part of the deposits, or as yellow ground for
the near surface smectite clay and carbonate weathered and oxidized portion.

Once diamonds have been transported to the surface by magma in a volcanic pipe, they
may erode out and be distributed over a large area. A volcanic pipe containing
diamonds is known as a primary source of diamonds. Secondary sources of
diamonds include all areas where a significant number of diamonds have been
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 eroded out of their kimberlite or lamproite matrix, and accumulated because of
water or wind action. These include alluvial deposits and deposits along existing
and ancient shorelines, where loose diamonds tend to accumulate because of their
size and density. Diamonds have also rarely been found in deposits left behind by
glaciers (notably in Wisconsin and Indiana); in contrast to alluvial deposits,
glacial deposits are minor and are therefore not viable commercial sources of
diamond.

DIAMOND DIRLLING

Exploration diamond drilling differs from other geological drilling in that a solid core
is extracted from depth, for examination on the surface. The key technology of
the diamond drill is the actual diamond bit itself. It is composed of industrial
diamonds set into a soft metallic matrix. As shown in the figure, the diamonds are
scattered throughout the matrix, and the action relies on the matrix to slowly wear
during the drilling, so as to expose more diamonds. The bit is mounted onto a drill
stem, which is connected to a rotary drill. Water is injected into the drill pipe, so as to
wash out the rock cuttings produced by the bit. An actual diamond bit is a complex
affair, usually designed for a specific rock type, with many channels for washing.

The drill uses a diamond encrusted drill bit (pictured on the right) to drill through the
rock. The drill produces a "core" which is photographed and split longitudinally. Half
of the split core is assayed while the other half is permanently stored for future use and
reassaying if necessary. Although a larger diameter core is the most preferred it is the
most expensive. The most common diameter sizes of core are NQ and CHD 76.

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CORE EXTRATION

Merely advancing the drill by rotary action (and washing) causes a core to be extracted
inside the barrel as shown. However, at a depth of perhaps 300 m, there must be a way
to retrieve the core and take it to the surface. Constantly withdrawing the entire heavy
drill pipe is impractical, so methods were developed to pull up the core inside the
barrel. If the rock would always be solid granite, and the core would always break at
the drill bit, then it would be a simple matter to stop the drilling, and lower a simple
grabbing device by a wire and pull up the core. Unfortunately, many applications
require an undisturbed core in fractured rock, which calls for elaborate wire-line
devices.

The photo shows the extraction of a core, using a triple-tube wire-line system, capable
of extracting core under the worst conditions. This is very important when exploring
fault zones such as the San Andreas Fault.

LIST OF DIAMONDS

A number of large or extraordinary diamonds have gained fame, both as exquisite

examples of the beautiful nature of diamonds, and because of the famous people who
wore, bought, and sold them. These diamonds are often depicted in marketing materials
aimed at the retail diamond customer.

A partial list of famous diamonds in history follows.

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The Akbar Shah, an Indian diamond with a roughly pear-shaped outline and
random faceting, including two Arabic inscriptions, the first reading "Shah Akbar,
the Grand King, 1028 A.H." (the letters mean "After Hegira", the first year of the
Muslim era, A.D. 622). The second inscription read "To the Lord of Two Worlds,
1039 A.H. Shah Jehan". The diamond was reportedly part of the original Peacock
Throne. Purchased in 1886 in Istanbul by London merchant George Blogg, who re-
cut it from 116 carats to a pear-shape of 71.70 carats, thus destroying the historic
inscriptions. Blogg was the last known owner and the stone's whereabouts are
presently unknown.

The Allnatt Diamond, a 101.29 carat antique cushion-shaped brilliant fancy vivid
yellow diamond.

The Agra Diamond, antique cushion-shaped stellar brilliant, 28 carats.

The Amsterdam Diamond, a 33.74 carat (6.748 g) pear-shaped black

diamond which sold for $352,000 in 2001.

The Archduke Joseph Diamond, antique cushion-shaped brilliant, originally

weighing 78.54 carats, purchased by Molina Jewelers of Arizona sometime in the
late-1990s and slightly re-cut to 76.45 carats to improve clarity and symmetry. D
color, Internally Flawless.

The Ashberg Diamond, 102.48 carats.

The Aurora Butterfly of Peace, a display of 240 fancy-colored diamonds.

The Aurora Pyramid of Hope, a display of 296 diamonds of natural colors.

The Beau Sancy, a 34-carat diamond not to be confused with the Sancy.
The Black Orlov, a 67.50 carat cushion-cut black diamond, also called the Eye of
Brahma Diamond.
The Blue Heart Diamond, 30.82-carat heart brilliant. Part of
the Smithsonian collection.
The Briolette of India Diamond, 90.38 carats - possibly the oldest diamond on
record.
The Centenary Diamond, 273.85 carats, modified heart-shaped brilliant, the world's
largest colorless (grade D), and flawless diamond.
The Chloe Diamond, largest round brilliant-cut diamond ever put on auction. Sold
on November 14th, 2007 at in Geneva to Georges Marciano of the Guess clothing

15
line for $16.2 million, the second-highest price ever paid for a diamond on auction.
Took 2 years to cut.
The Cross of Asia discovered in 1902 in South Africa as a 280-carat crystal. At first
diamond was cut to 142 carats, and next the cut was three times changed to 112
carats, a cushion-cut of 109.28 carats (the weight Lawrence Copeland's "Diamonds
- Famous, Notable and Unique" lists it at) measuring 1⅛ × ⅞ × ⅝ inches, and
finally into a radiant-cut gem of 79.12 carats to elimination all flaws. It is Fancy
Yellow and Internally Flawless.
The Cullinan Diamond, the largest rough gem-quality diamond ever found at
3106.75 carats (621.35 g). It was cut into 105 diamonds including the Cullinan I or
the Great Star of Africa, 530.2 carats (106.04 g), and the Cullinan II or the Lesser
Star of Africa, 317.4 carats (63.48 g), both of which are now part of the British
Crown Jewels.
The Darya-ye Noor Diamond, the largest pink diamond in the world, about 182
carats (36 g), part of Iranian Crown Jewels. Its exact weight isn't known and 186
carats is an estimate.
The Deepdene, widely considered to be the largest artificially irradiated diamond in
the world, at 104.52 carats.
The De Young Red Diamond, weighing 5.03 carats, the third-largest known red
diamond, was bought in a flea market on a hatpin by Sidney deYoung a prominent
Boston estate jewelry merchant. It was donated by him to the Smithsonian
Institution National Museum of Natural History.
The Dresden Green Diamond, 41-carat antique pear-shaped brilliant - its color is
the result of natural irradiation
The Dresden White Diamond, 47-carat antique oval brilliant, near-colorless
The Dresden Yellow Diamond, 38-carat antique round cut
The Earth Star Diamond a 111.59-carat, pear-shaped diamond with a strong coffee-
like brown color.
The Eureka Diamond, the first diamond found in South Africa, a yellow-brown
21.25 carat stone (before cutting) resulting in a finished diamond 10.73 carats
The Empress Eugenie Diamond, 52-carat antique pear-shaped brilliant with an odd,
random facet pattern
The Excelsior Diamond, the largest known diamond in the world prior to the
Cullinan at 970 carats, it was later cut into 10 pieces of various sizes (13 - 68 carats)
The Florentine Diamond, a lost diamond, light yellow with a weight of 137.27
carats (27.45 g).
The Golden Eye Diamond, a world's largest, flawless, 'perfect-cut' Canary Yellow
diamond (43.5 carats).
The Golden Jubilee Diamond, the largest faceted diamond ever cut at 545.67 carats
(109.13 g)
The Graff Blue Diamond
The Great Chrysanthemum Diamond, 104.15 carats
The Great Mogul Diamond, fabled 280-carat mogul-cut diamond, now lost,
although presumed by historians to have been re-cut as the Orlov.
The Gruosi Diamond, a heart-shaped black diamond, weighing 115.34 carats.
The Heart of Eternity Diamond, perhaps the largest fancy vivid blue, weighing
27.64 carats.
The Hope Diamond, 45.52 carats, is a Fancy Dark Grayish-Blue diamond and
supposedly cursed. Almost certainly cut from the French Blue Diamond.
The Hortensia Diamond, peach color, formerly part of the French Crown Jewels.
Displayed in the Louvre.
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The Idol's Eye, 70.21 carats
The Incomparable Diamond, a brownish-yellow diamond of 407.48 carats (81.496
g) cut from an 890 carat (178 g) rough diamond of the same name - it appeared on
eBay in 2002. Internally Flawless clarity.
The Jacob Diamond weighing 184.5 carats (36.90 g), also known as Imperial
Diamond & Victoria Diamond.
The Jones Diamond, weighing 34.48 carats, found in West Virginia by the Jones
family.
The Jubilee Diamond, originally known as the Reitz Diamond; perhaps the sixth-
largest in the world at 245.35 carats.
The Kazanjian Red Diamond, a 5.05-carat Asscher-cut red diamond formerly
known simply as "Red Diamond". It was cut from a 35-carat piece of boart
discovered near Lichtenburg, South Africa. It reappeared in 2007 after a 37-year
absence from sight, and was purchased by Kazanjian Brothers Inc.
The Kimberley Diamond, 55.09 carats
The Koh-i-Noor, a 105.6 carat (21.6 g) white of Indian origin, with a long and
turbulent history and a good deal of legend surrounding it. After belonging to
various Mughal and Persian rulers, it was taken away from the Maharaja Duleep
Singh of Lahore and was presented to Queen Victoria during the British Raj, and is
now part of the Crown of Queen Elizabeth the Queen Mother.
The Le luz de dia, a 201 carat (40.25 g) colorless diamond, with unknown history.
The first note about this gem is in a book from the 16th century. It was sold for
almost $24.5M in 2004 only to be stolen two days later. It hasn't appeared since.
The Lesotho Brown was a stone originally 601 carats, with the largest stone 71.73
carats after cutting.
The Lesotho Promise, is the 15th-largest diamond, the tenth-largest white diamond,
and the largest diamond to be found in 13 years. The original stone was 603 carats,
although the largest diamond after the cutting was 75 carats.
The Millennium Star, at 203.04 carats is the second-largest colorless (grade D),
flawless diamond.

The Moon of Baroda, 24.04 carats

The Moussaieff Red Diamond, the largest known Fancy Red, at 5.11 carats.
The Mouna Diamond, 112.53 carats, Fancy Intense Yellow cushion-shaped
brilliant.
The Nassak Diamond, 43.38 carats
The Nepal Diamond, 79.41 carats, fine quality antique pear-shaped brilliant, sold by
Harry Winston to private collector in 1961. Thought to have originated from the
Golconda Mines.
The Nizam Diamond, reportedly 340 carats.
The Nur-Ul-Ain Diamond, around 60 carats and part of the Iranian crown jewels.
The Ocean Dream Diamond, the only known natural Fancy Deep Blue-Green, and
weighs 5.51 carats.

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The Oppenheimer Diamond, one of the largest gem-quality uncut diamonds in the
world, at 253.7 carats.
The Orlov, an Indian mogul cut rumored to have served as the eye of a Hindu
statue, and now currently is part of the Kremlin Diamond Fund, weighing
approximately 190 carats.
The Paragon, weighs 137.82 carats.
The Polar Star Diamond, a colorless cushion-shaped stellar brilliant diamond
weighing 41.28 carats.
The Porter Rhodes Diamond, a colorless 54-carat Asscher-cut stone.
The Portuguese Diamond, 127-carat antique emerald cut with a pale yellow body
color and very strong blue fluorescence. Part of the Smithsonian's collection.
The Premier Rose Diamond, 137.02-carat (27.4 g) stone cut from a 353.9-carat
(70.8 g) rough gem of the same name
The Pumpkin Diamond, perhaps the largest fancy vivid orange diamond (5.54
carats), modified cushion-shaped brilliant.
The Red Cross Diamond, 205.07 carats, yellow, cushion-shaped stellar brilliant cut.]
The Regent Diamond, weights 140.64 carats, is cushion-shaped stellar brilliant cut,
formerly belonging to Louis XV, Louis XVI, and Napoleon Bonaparte; it now
resides in the Louvre.
The Sancy, a shield-shaped pale yellow diamond currently in the Louvre, weighing
55.23 carats.
The Shah Diamond, very old yellow diamond (found approximately in 1450 in
India) currently housed in the Diamond Fund in Kremlin, weighing 88.7 carats.
The Spirit of de Grisogono Diamond, 312 carats, the world's largest cut black
diamond.
The Spoonmaker's Diamond, circa 86-carat (17 g) diamond housed in Topkapı
Palace in Istanbul.
The Star of Arkansas
The Star of the East, a 95-carat (19 g) stone once owned by Mrs. Evalyn McLean of
Washington DC, who also owned the Hope Diamond.
The Star of Sierra Leone was originally 968.9 carats, cut into smaller pieces, the
largest of which is 53.96 carats.
The Star of South Africa, also known as the Dudley Diamond. This must not be
confused with the Star of Africa. The Star of South Africa was the initial name
given to this diamond, when it was purchased as an 83.5-carat rough diamond. The
diamond is a D-color, pear-shaped stellar brilliant cut stone, and weighing 47.69
carats.
The Star of the Season, a 100.10-carat pear-shaped D-color, Internally Flawless
stone. At $16,548,750 US it held the world record for the highest price paid for a
diamond at auction until the sale of the Wittelsbach in 2008.
The Star of the South. Weighing 128.48 carats.
The Steinmetz Pink Diamond, modified oval brilliant cut (step cut crown, brilliant
pavilion), largest known fancy vivid pink, at 59.60 carats.
The Strawn-Wagner Diamond, the only diamond ever to receive a "perfect" 0/0/0
rating from the American Gem Society, weighing 3.03 carats rough and 1.09 carats
cut. On exhibit at Crater of Diamonds State Park in Arkansas, where it was found in
1990.
The Taylor-Burton Diamond, purchased by Richard Burton for his wife Elizabeth
Taylor, weighing 68 carats.
The Tereschenko, 42-carat antique pear brilliant cut.

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 The Tiffany Yellow Diamond, antique modified cushion-shaped stellar brilliant cut,
on display at Tiffany & Co.'s New York City store. It weighs 128.54 carats.
The Uncle Sam Diamond, the largest discovered in the US, emerald-cut, M color
(pale brown), VVS2 clarity, weighing 40.23 carats.
The Vargas diamond
The Wittelsbach-Graff Diamond, 35.56 carats, Fancy Deep Grayish Blue, antique
oval stellar brilliant cut - was recut! Sold at Christie's, London, December 10, 2008
for $23.4 million to Lawrence Graff, currently the highest price ever paid for a
diamond at auction.

BLOOOD DIAMONDS

In 1998, the United Nations (UN) placed Angola under sanctions forbidding countries
from buying diamonds from them. This was the first resolution of the UN which
specifically mentioned diamonds in the context of funding the war. Reports estimated
that as much as 20% of total production in the 1980s was being sold for illegal
purposes, and 19% were specifically conflict in nature. By 1999, the illegal diamond
trade was estimated by the World Diamond Council to have been reduced to 3.06% of
the world's diamond production. The World Diamond Council reported that by 2004
this percentage had fallen to approximately 1%.

Angola, formerly a colony of Portugal, gained independence on November 11, 1975.

Although independent, the Popular Movement for the Liberation of Angola (MPLA),
the National Union for the Total Independence of Angola (UNITA), and the National
Liberation Front of Angola (FNLA) fought in civil war from 1974 to 2001. UNITA
sold diamonds abroad in violation of the Bicesse Accords of 1994 to finance its war
with the government. The UN recognized the role that diamonds played in funding the
UNITA rebels, and in 1998 banned countries from buying diamonds from Angola.

Liberia

From 1989 to 2001 Liberia was engaged in a civil war. In 2000, the UN accused
Liberian president Charles G. Taylor of supporting the RUF insurgency in Sierra Leone
with weapons and training in exchange for diamonds. In 2001 the UN applied sanctions
on the Liberian diamond trade. In August 2003 Taylor stepped down as president, and
after being exiled to Nigeria, now faces trial in The Hague. On July 21, 2006 he
pleaded not guilty to crimes against humanity and war crimes

Around the time of the 1998 United States embassy bombings, al-Qaeda allegedly
bought gems from Liberia as some of its other financial assets were frozen.

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Liberia today is at peace and is attempting to construct a legitimate diamond mining
industry. The UN has lifted sanctions and Liberia is now a member of the Kimberley
Process.

Côte d'Ivoire

Côte d'Ivoire began to develop a fledgling diamond mining industry in the early 1990s.
A coup overthrew the government in 1999, starting a civil war. The country became a
route for exporting diamonds from Liberia and war-torn Sierra Leone. Foreign
investment began to withdraw from the Ivory Coast. To curtail the illegal trade, the
nation stopped all diamond mining, and the UN Security Council banned all exports of
diamonds from Côte d'Ivoire in December 2005, however, despite UN sanctions the
illicit diamond trade still exists in Côte d'Ivoire. Rough diamonds are exported out of
the country to neighboring states and international trading centers through the northern,
Forces Nouvelles controlled section of the country, a group which is reported to be
using these funds to re-arm.

The Democratic Republic of the Congo

The Democratic Republic of the Congo (formerly Zaire) has suffered numerous civil
wars in the 1990s, but has become a member of the Kimberley Process and now exports
about 8% of the world's diamonds. One of De Beers' most celebrated and priceless
diamonds, the flawless D-colour 200 carats (40 g) Millennium Star was discovered in
the DRC and sold to De Beers during the height of the Civil War that took place in the
early to mid-nineties.

The Republic of Congo

The Republic of Congo (Congo-Brazzaville) faced UN sanctions in 2004 because

despite having no official diamond mining industry, the country was exporting large
quantities of diamonds, the origin of which it could not detail.

Zimbabwe

Although Zimbabwean diamonds are still not considered blood diamonds under
the Kimberley Process, the current chaotic production at Marange and smuggling are
being monitored by the World Diamond Council.

Although the United Nations first identified the conflict diamond issue in 1998 as a
funding for war, it was the diamond industry that took steps to address the conflict
diamond issue by convening a meeting to plan a process by which diamond origin
could be certified. In May 2000, diamond producing countries of southern Africa met
in Kimberley, South Africa to plan a method by which the trade in conflict diamonds
could be halted, and buyers of diamonds could be assured that their diamonds have not
contributed to violence.

On July 19, 2000, the World Diamond Congress adopted at Antwerp a resolution to
strengthen the diamond industry's ability to block sales of conflict diamonds. The
resolution called for an international certification system on the export and import of
diamonds, legislation in all countries to accept only officially sealed packages of
diamonds, for countries to impose criminal charges on anyone trafficking in conflict
20
diamonds, and instituted a ban on any individual found trading in conflict diamonds
from the diamond bourses of the World Federation of Diamond Bourses.

On January 17 - 18 of 2001, diamond industry figures convened and formed the new
organization, the World Diamond Council. This new body set out to draft a new
process, whereby all diamond rough could be certified as coming from a non-conflict
source.

The KPCS was given approval by the UN on March 13, 2002, and in November, after
two years of negotiation between governments, diamond producers, and Non-
Government organizations, the Kimberley Process Certification Scheme (KPCS) was
created.

The biggest weakness of the Kimberley Process is how it is monitored. Any country
can become a member of the Kimberley Process by sending a letter to the
organization's president, currently, the European Commission. Whether or not the
country meets the standards of the Kimberley Process, it can still become a
member. This means that many conflict diamonds are still getting past the Kimberly
Certification Scheme because some countries don't meet the requirements of the
Kimberley Process. However, as of 2007, it is estimated that its share in total trade of
rough diamond has come down to only USD 10.2 million. As of now the Kimberley
Process is made up of 49 members representing 75 countries.

Transparency

The Kimberley system increases governments' transparency by forcing them to keep

records of the diamonds they are exporting and importing and how much they are
worth. This shows the governments their finances so that they can be held accountable
for how much they are spending for the benefit of the country's population.

The origins of the Kimberly Process were dramatized in Ed Zwick's 2006 motion
picture Blood Diamond. The film helped to publicize the controversy surrounding
blood diamonds and led to worldwide awareness of the horrors in western Africa
involved in the diamond trade.

U.S. policy

On January 18, 2001, President Bill Clinton issued Executive Order 13194 which
prohibited the importation of rough diamonds from Sierra Leone into the United States
in accordance with the UN resolutions. On May 22, 2001, President George W.
Bush issued Executive Order 13213 which banned rough diamond importation from
Liberia into the United States. Liberia had been recognized by the United Nations as
acting as a pipeline for conflict diamonds from Sierra Leone.

United States enacted the Clean Diamond Trade Act (CDTA) on April 25, 2003. and
implemented on July 29, 2003 by Executive Order 13312. The CDTA installed the
legislation to implement the KPCS in law in the United States. The implementation of
this legislation was key to the success of the KPCS, as the United States is the largest

21
consumer of diamonds. The CDTA states: 'As the consumer of a majority of the
world’s supply of diamonds, the United States has an obligation to help sever the link
between diamonds and conflict and press for implementation of an effective solution.

Canadian policy

During the 1990s diamond rich areas were discovered in Northern Canada. Canada is
one of the key players in the diamond industry. Partnership Africa Canada was created
in 1986 to help with the crisis in Africa. This organization is also part of the Diamond
Development Initiative. The Diamond Development Initiative helps improve and
regulate the legal diamond industry.

The Kimberley Process was initiated in May 2000 by South Africa. Canada was a
major supporter of passing this. Canada has passed several laws that help stop the trade
of conflict diamonds. The laws deal with the export and import of rough diamonds, and
also how they are transferred. In December 2002 the Export and Import of Rough
Diamonds Act was passed by the Canadian government. This act acts as a system that
helps control the importing, exporting and transporting of rough diamonds through
Canada. The Export and Import of Rough Diamonds also states that the Kimberley
Process is the minimum requirement of certifying rough diamonds and a certificate is
also required for all shipments of diamonds. This certificate is called the Canadian
Certificate, it gives permission for an officer to seize any shipment of diamonds that
don't meet the requirements of the Export and Import of Rough Diamonds Act.

The Government of the Northwest Territories of Canada (GNWT) also has a unique
certification program. They offer a Government certificate on all diamonds that are
mined, cut, and polished, in the Northwest Territories of Canada. Each diamond is also
laser inscribed and recorded in a database. To obtain this certificate one must cut and
polish the diamond in the NWT.

DIAMOND AS AN INVESTMENT

History

Diamonds have been treasured as gemstones since the ancient times. Popularity of
diamonds has risen since the 19th century because of successful advertising in spite of a
greatly increased supply. Diamonds are not normally used as a mainline store of
value during times of crisis, because of their lack of fungibility and low liquidity.
However, they may still be useful during times of hyperinflation.

Approximately 20% of mined diamonds are used in jewelry and 80% for industrial uses
(such as lasers, drill parts and surgical equipment).

Chemical vapor deposition is now used to produce synthetic diamonds which,

unlike diamond stimulants, inherit all the properties of gemstones formed in nature.

fee fluctuations

22
Historically, the rough diamond price has been controlled by the De Beers Group,
which has a 40% to 50% market share. Botswana is currently the largest producer of
diamonds by value, with mines operated by Debswana, a joint venture between De
Beers and the Botswana government. However, since the 1980s, other producers have
developed new mines in Russia, Canada and Australia for example, challenging De
Beers' dominance (historically De Beers' market share was considerably higher). De
Beers through its trading company DTC raised wholesale diamond prices three times in
2004 by a total of 14%.

The United States is the biggest consumer of diamonds in the world. It accounts for
35% of diamond sales, Hong Kong 26%, Belgium 15%, Japan 6%,
and Israel 4%. Israel and Belgium in particular are important diamond-trading hubs
thus their consumption numbers are misleading.

Polished diamond prices vary widely depending on a

diamond's carat, color, clarity and cut (The 4 C's). In contrast to precious metals, there
is no universal world price per gram for diamonds. However the industry does refer to
price guides such as the Rapaport Diamond Report, Ajediam Antwerp Diamonds
Monthly and The Gem Guide, which are published weekly or quarterly.

In addition to print and online references, numerous institutions have varying standards
which can be used to aid in diamond identification and pricing. GIA, HRD and IGI are
three such institutions. Often these organizations focus on new research and education
which they pass on to their members and the public.

Financial feasibility

There is no natural shortage of diamonds. Diamonds can be synthesized at much lower

cost than the equivalent natural diamond price, and the chemical and structural purity of
a synthetic diamond can exceed a natural one. However, the chemical composition is
not the only factor that determines their value - the quality of the cut is of as much, if
not greater, importance.

Today there are a few funds that are investing in diamonds. These funds purchase
unique diamonds (very large in size or color); each stone is checked by a few
professionals and negotiated until the fund decides to purchase it. Then a marketing
team goes into action and through an extensive work the fund yield is gained. Between
2007 and 2008 the price of a diamond from the top range of color, clarity, cut and carat
went up by over 50%

Investment methods

Polished and rough diamonds lack some of the desirable attributes of investment
vehicles, including liquidity, homogeneity and fungibility. Grading and certification by
recognized laboratories goes some way to redressing this. Weight and cutting
proportions are parameters which can be precisely measured. Colour and clarity grades
are parameters which need to be determined by gemologists.

23
The increasing quality and size, and decreasing price, of synthetic diamonds also
presents a threat to the value of polished diamonds as a long-term investment. The
possibility of low-cost ultra–high-quality diamonds becoming available in industrial
quantities at some time in the future is not an encouraging prospect for long-term
investors in diamonds. However, synthetic diamonds have been manufactured since the
1950s and have yet to make a major impact on the market.

A cautionary example of such a price fall caused by introduction of a new stimulant

strongly undermining the prices of a natural gem was the permanent fall in natural pearl
prices with the introduction of cultured pearls. The mechanism by which prices were
affected is complex. In part because of the social acceptability of wearing cultured
pearls to much of the market, customers migrated from the natural to the lower priced
cultured product. This altered the supply and demand situation for natural pearls and
perhaps the overall prestige of pearls in general was lowered. Where synthetic stones
are less socially acceptable to the market for the natural version, arguably as with
synthetic corundum’s where the two markets, natural and synthetic, are mostly
separate, the prestige of the natural stones has been, with effort, retained. Thus
increased availability and lowered prices of synthetics may or may not have major
implications for the future price of natural diamonds. In addition, the introduction of
synthetic rubies in the late 19th Century did not appear to have a permanent effect on
the price of natural rubies.

There are several factors contributing to low liquidity of diamonds. One of the main is
the lack of terminal market. Most commodities have terminal markets, and some form
of exchange, clearing, and central storage facilities. Until recently this did not exist for
diamonds. Diamonds are also subject to value added tax in the UK, EU, and sales tax in
most developed countries, therefore reducing their effectiveness as an investment
medium. Most diamonds are sold through retail stores at very high profit margins.

As diamonds in larger sizes become increasingly rare and valuable, any easily visible
and readily understood pricing system has been difficult to establish. Martin
Rapaport produces the Rapaport Diamond Report, which lists prices for polished
diamonds. The Rapaport Diamond Report is relatively expensive to subscribe to, and as
such is not readily available to consumers and investors. Each week, there are matrices
of diamond prices for round brilliant cut diamonds, by colour and clarity within size
bands, and also other shapes. The price matrix for brilliant cuts alone exceeds 1,400
entries, and even this is achieved only by grouping some grades together. There are
considerable price shifts near the edges of the size bands, so a 0.49 carats (98 mg) stone
may list at $5,500 per carat = $2,695, while a 0.50 carats (100 mg) stone of similar
quality lists at $7,500 per carat = $3,750. This may appear such a large difference as to
defy logic, but in reality stones near the top of a size band tend to be up rated slightly.
Some of the price jumps are related to marketing and consumer expectations. A buyer
expecting a 1 carat (200 mg) diamond solitaire engagement ring may be unprepared to
accept a 0.99 carats (198 mg) diamond.

There are numerous diamond grading laboratories, and there is no easy way for
investors, consumers, or even dealers to know the relative competence and integrity of
each. Even the market-leading Gemological Institute of America (GIA) suffered

24
embarrassment recently when a small number of large, important and valuable
diamonds were over graded, resulting in legal action by one dealer against the dealer
who had submitted them to the GIA for grading. A number of GIA employees left after
the scandal emerged, and the GIA has changed a number of its procedures. There are
also a number of laboratories affiliated to CIBJO (Confédération Internationale de la
Bijouterie, Joaillerie et Orfèvrerie, also known as the World Jewellery Confederation).
There must be commercial pressure on all labs to upgrade marginal stones or lose
business to other labs that are prepared to reduce standards.

The non-linear pricing of different sizes (weights) of diamonds means that it is not
realistic to exchange, for example, 2 quarter carats (50 mg) for 1 half carat (100 mg).
With commodities such as gold, it is clear that 1 twenty gram bar is worth the same as 2
ten gram bars, assuming the same quality. In most terminal markets, there needs to be a
readily available standard quality, or limited number of qualities, available in sufficient
quantity to be tradable. This is a major factor which affects liquidity. The large number
of variables in diamond quality makes commodity-like pricing difficult.

There are fashion and marketing elements to take into consideration. De Beers expends
marketing efforts to encourage sales of diamond sizes and qualities which are being
produced in relatively large quantities. They have also been known to take steps to
discourage investment, primarily because they perceive that bubble prices which are
followed by sharp falls are bad for long term consumer confidence in diamonds as a
long-term store of value. Diamonds are primarily a consumer item.

The main positive investment parameter of diamonds is their high value per unit
weight, which makes them easy to store and transport. A high quality diamond
weighing as little as 2 or 3 grams could be worth as much as 100 kilos of gold. This
extremely condensed value and portability does bestow diamonds as a form of
emergency disaster fund. People and populations displaced by war or extreme upheaval
have utilized this property successfully

The arguments given mean that it is almost certain that diamonds can never be
commoditized sufficiently to allow efficient and sufficiently liquid markets. This does
not mean, however, that diamonds can never be used or considered as investments. The
very lack of liquidity itself could be used by a speculator who was prepared to make a
market in diamonds. Any such investor would need to ensure that he maintained
sufficient personal liquidity to avoid distress selling, except by others. Such an investor
would need to expend effort to market his stock and to advertise his readiness to buy
and would effectively become a trader rather than investor.

In 2009 an exchange was launched by DODAQ to trade categories of polished

diamonds. The DODAQ exchange is intended to be a terminal market for round
polished certified diamonds (which is the most liquid part of the market) and hosts its
centralized storage facility in a Free zone. The exchange is an attempt to overcome the
traditional investment barriers of sales tax and low liquidity on the resale market.

25
Commercial market

A round brilliant cut diamond set in a ring

The diamond industry can be separated into two distinct categories: one dealing with
gem-grade diamonds and another for industrial-grade diamonds. While a large trade in
both types of diamonds exists, the two markets act in dramatically different ways.

Gemstones and their distribution

A large trade in gem-grade diamonds exists. Unlike other commodities, such as most
precious metals, there is a substantial mark-up in the retail sale of gem diamonds. There
is a well-established market for resale of polished diamonds (e.g. pawnbroking,
auctions, second-hand jewelry stores, diamantaires, bourses, etc.). One hallmark of the
trade in gem-quality diamonds is its remarkable concentration: wholesale trade and
diamond cutting is limited to just a few locations; In 2003, 92% of the world's
diamonds were cut and polished in Surat, India. Other important centers of diamond
cutting and trading are Antwerp, where the International Gemological Institute is based,
London, New York City, Tel Aviv, and Amsterdam. A single company—De Beers—
controls a significant proportion of the trade in diamonds. They are based in
Johannesburg, South Africa and London, England. One contributory factor is the
geological nature of diamond deposits: several large primary kimberlite-pipe mines
each account for significant portions of market share (such as the Jwaneng mine in
Botswana, which is a single large pit operated by De Beers that can produce between
12.5 to 15 million carats of diamonds per year,) whereas secondary alluvial diamond
deposits tend to be fragmented amongst many different operators because they can be
dispersed over many hundreds of square kilometers (e.g., alluvial deposits in Brazil).

The production and distribution of diamonds is largely consolidated in the hands of a

few key players, and concentrated in traditional diamond trading centers, the most
important being Antwerp, where 80% of all rough diamonds, 50% of all cut diamonds
and more than 50% of all rough, cut and industrial diamonds combined are handled.
This makes Antwerp a de facto "world diamond capital". Another important diamond
center is New York City, where almost 80% of the world's diamonds are sold, including
auction sales. The DeBeers company, as the world's largest diamond miner holds a
dominant position in the industry, and has done so since soon after its founding in 1888
by the British imperialist Cecil Rhodes. De Beers owns or controls a significant portion
of the world's rough diamond production facilities (mines) and distribution channels for
gem-quality diamonds. The Diamond Trading Company (DTC) is a subsidiary of De
26
Beers and markets rough diamonds from De Beers-operated mines. De Beers and its
subsidiaries own mines that produce some 40% of annual world diamond production.
For most of the 20th century over 80% of the world's rough diamonds passed through
De Beers, but in the period 2001–2009 the figure has decreased to around 45%. De
Beers sold off the vast majority its diamond stockpile in the late 1990s – early 2000s
and the remainder largely represents working stock (diamonds that are being sorted
before sale). This was well documented in the press but remains little known to the
general public.

As a part of reducing its influence, De Beers withdrew from purchasing diamonds on

the open market in 1999 and ceased, at the end of 2008, purchasing Russian diamonds
mined by the largest Russian diamond company Alrosa. Alrosa had to suspend their
sales in October 2008 due to the global energy crisis and was expected to resume them
in late 2009. Apart from Alrosa, other important diamond mining companies include
BHP Billiton, which is the world's largest mining company; Rio Tinto Group, the
owner of Argyle (100%), Diavik (60%), and Murowa (78%) diamond mines: and Petra
Diamonds, the owner of several major diamond mines in Africa.

Further down the supply chain, members of The World Federation of Diamond Bourses
(WFDB) act as a medium for wholesale diamond exchange, trading both polished and
rough diamonds. The WFDB consists of independent diamond bourses in major cutting
centers such as Tel Aviv, Antwerp, Johannesburg and other cities across the USA,
Europe and Asia. In 2000, the WFDB and The International Diamond Manufacturers
Association established the World Diamond Council to prevent the trading of diamonds
used to fund war and inhumane acts. WFDB's additional activities include sponsoring
the World Diamond Congress every two years, as well as the establishment of the
International Diamond Council (IDC) to oversee diamond grading.

Once purchased by Sightholders (which is a trademark term referring to the companies

that have a three-year supply contract with DTC), diamonds are cut and polished in
preparation for sale as gemstones ('industrial' stones are regarded as a by-product of the
gemstone market; they are used for abrasives). The cutting and polishing of rough
diamonds is a specialized skill that is concentrated in a limited number of locations
worldwide. Traditional diamond cutting centers are Antwerp, Amsterdam,
Johannesburg, New York City, and Tel Aviv. Recently, diamond cutting centers have
been established in China, India, Thailand, Namibia and Botswana. Cutting centers
with lower cost of labor, notably Surat in Gujarat, India, handle a larger number of
smaller carat diamonds, while smaller quantities of larger or more valuable diamonds
are more likely to be handled in Europe or North America. The recent expansion of this
industry in India, employing low cost labor, has allowed smaller diamonds to be
prepared as gems in greater quantities than was previously economically feasible.

Diamonds which have been prepared as gemstones are sold on diamond exchanges
called bourses. There are 26 registered diamond bourses in the world. Bourses are the
final tightly controlled step in the diamond supply chain; wholesalers and even retailers
are able to buy relatively small lots of diamonds at the bourses, after which they are
prepared for final sale to the consumer. Diamonds can be sold already set in jewelry, or
sold unset ("loose"). According to the Rio Tinto Group, in 2002 the diamonds produced
and released to the market were valued at US$9 billion as rough diamonds,
US$14 billion after being cut and polished, US$28 billion in wholesale diamond
jewelry, and US$57 billion in retail sales.
27
Marketing

The image of diamond as a valuable commodity has been preserved through clever
marketing campaigns. In particular, the De Beers diamond advertising campaign is
acknowledged as one of the most successful and innovative campaigns in history. N.
W. Ayer & Son, the advertising firm retained by De Beers in the mid-20th century,
succeeded in reviving the American diamond market and opened up new markets, even
in countries where no diamond tradition had existed before. N. W. Ayer's multifaceted
marketing campaign included product placement, advertising the diamond itself rather
than the De Beers brand, and building associations with celebrities and royalty. This
coordinated campaign has lasted decades and continues today; it is perhaps best
captured by the slogan "a diamond is forever". It should be noted however, that
graphite is the most stable allotrope of carbon, and as such diamond should in theory
eventually become graphite.

Another example of successful diamond marketing is brown Australian diamonds.

Brown-colored diamonds have always constituted a significant part of the diamond
production, but were considered worthless for jewelry; they were not even assessed on
the diamond color scale, and were predominantly used for industrial purposes. The
attitude has changed drastically after the development of Argyle diamond mine in
Australia in 1986. As a result of an aggressive marketing campaign, brown diamonds
have become acceptable gems. The change was mostly due to the numbers: the Argyle
mine, with its 35 million carats (7,000 kg) of diamonds per year, makes about one-third
of global production of natural diamonds; 80% of Argyle diamonds are brown.

Cutting

The Darya-I-Nur Diamond—an example of unusual diamond cut and jewelry

arrangement

The mined rough diamonds are converted into gems through a multi-step process called
"cutting". Diamonds are extremely hard, but also brittle and can be split up by a single
blow. Therefore, diamond cutting is traditionally considered as a delicate procedure
requiring skills, scientific knowledge, tools and experience. Its final goal is to produce a
faceted jewel where the specific angles between the facets would optimize the diamond
luster, that is dispersion of white light, whereas the number and area of facets would
determine the weight of the final product. The weight reduction upon cutting is
significant and can be of the order of 50%. Several possible shapes are considered, but
the final decision is often determined not only by scientific, but also practical
considerations. For example the diamond might be intended for display or for wear, in a
ring or a necklace, singled or surrounded by other gems of certain color and shape.

The most time-consuming part of the cutting is the preliminary analysis of the rough
stone. It needs to address a large number of issues, bears much responsibility, and
therefore can last years in case of unique diamonds. The following issues are
considered:

• The hardness of diamond and its ability to cleave strongly depend on the crystal
orientation. Therefore, the crystallographic structure of the diamond to be cut is

28
 analyzed using X-ray diffraction in order to choose the optimal cutting
directions.
• Most diamonds contain visible non-diamond inclusions and crystal flaws. The
cutter has to decide which flaws are to be removed by the cutting and which
could be kept.
• The diamond can be split by a single, well calculated blow of a hammer to a
pointed tool, which is quick, but risky. Alternatively, it can be cut with a
diamond saw, which is a more reliable but tedious procedure.

After initial cutting, the diamond is shaped in numerous stages of polishing. Unlike
cutting, which is a responsible but quick operation, polishing removes material by
gradual erosion and is extremely time consuming. The associated technique is well
developed; it is considered as a routine and can be performed by technicians. After
polishing, the diamond is reexamined for possible flaws, either remaining or induced by
the process. Those flaws are concealed through various diamond enhancement
techniques, such as repolishing, crack filling, or clever arrangement of the stone in the
jewelry. Remaining non-diamond inclusions are removed through laser drilling and
filling of the voids produced.

Industrial uses

A scalpel with synthetic diamond blade

Diamonds in an angle grinder blade

The market for industrial-grade diamonds operates much differently from its gem-grade
counterpart. Industrial diamonds are valued mostly for their hardness and heat

29
conductivity, making many of the gemological characteristics of diamonds, such as
clarity and color, irrelevant for most applications. This helps explain why 80% of
mined diamonds (equal to about 135 million carats or 27 metric tons annually),
unsuitable for use as gemstones, are destined for industrial use. In addition to mined
diamonds, synthetic diamonds found industrial applications almost immediately after
their invention in the 1950s; another 570 million carats (114 tons) of synthetic diamond
is produced annually for industrial use. Approximately 90% of diamond grinding grit is
currently of synthetic origin.

The boundary between gem-quality diamonds and industrial diamonds is poorly

defined and partly depends on market conditions (for example, if demand for polished
diamonds is high, some suitable stones will be polished into low-quality or small
gemstones rather than being sold for industrial use). Within the category of industrial
diamonds, there is a sub-category comprising the lowest-quality, mostly opaque stones,
which are known as bort.

Industrial use of diamonds has historically been associated with their hardness; this
property makes diamond the ideal material for cutting and grinding tools. As the
hardest known naturally occurring material, diamond can be used to polish, cut, or wear
away any material, including other diamonds. Common industrial adaptations of this
ability include diamond-tipped drill bits and saws, and the use of diamond powder as an
abrasive. Less expensive industrial-grade diamonds, known as bort, with more flaws
and poorer color than gems, are used for such purposes. Diamond is not suitable for
machining ferrous alloys at high speeds, as carbon is soluble in iron at the high
temperatures created by high-speed machining, leading to greatly increased wear on
diamond tools compared to alternatives.

Specialized applications include use in laboratories as containment for high pressure

experiments high-performance bearings, and limited use in specialized windows. With
the continuing advances being made in the production of synthetic diamonds, future
applications are becoming feasible. Garnering much excitement is the possible use of
diamond as a semiconductor suitable to build microchips, or the use of diamond as a
heat sink in electronics.

GEMOLOGICAL CHARACTERISTICS:-

The most familiar usage of diamonds today is as gemstones used for adornment a usage
which dates back into antiquity. The dispersion of white light into spectral colors, is the
primary gemological characteristic of gem diamonds.

In the twentieth century, experts in the field of gemology have developed methods of
grading diamonds and other gemstones based on the characteristics most important to
their value as a gem. Four characteristics, known informally as the four Cs, are now
commonly used as the basic descriptors of diamonds: these are carat, cut, color, and
clarity.

Most gem diamonds are traded on the wholesale market based on single values for each
of the four Cs; for example knowing that a diamond is rated as 1.5 carats (300 mg),

30
VS2 clarity, F color, excellent cut round brilliant, is enough to reasonably establish an
expected price range.

More detailed information from within each characteristic is used to determine actual
market value for individual stones. Consumers who purchase individual diamonds are
often advised to use the four Cs to pick the diamond that is "right" for them.

Other characteristics not described by the four Cs influence the value or appearance of
a gem diamond. These characteristics include physical characteristics such as the
presence of fluorescence, as well as data on a diamond's history including its source
and which gemological institute performed evaluation services on the diamond.
Cleanliness also dramatically affects a diamond's beauty.

SHAPE

1.13 carat round diamond ring

Diamonds do not show all of their beauty as rough stones; instead, they must be cut and
polished to exhibit the characteristic fire and brilliance that diamond gemstones are
known for. Diamonds are cut into a variety of shapes that are generally designed to
accentuate these features.

Diamonds which are not cut to the specifications of Tolkowsky's round brilliant shape
(or subsequent variations) are known as "fancy cuts." Popular fancy cuts include the
baguette (from the French, meaning rod or loaf of bread), marquise, princess cut
(square outline), heart, briolette (a form of the rose cut), and pear cuts.

Newer cuts that have been introduced into the jewelry industry are the "cushion"
"radiant"(similar to princess cuts, but with rounded edges instead of square edges) and
"Asscher" cuts. Many fancy colored diamonds are now being cut according to these
new styles. Generally speaking, these "fancy cuts" are not held to the same strict
standards as Tolkowsky-derived round brilliants and there are less specific
mathematical guidelines of angles which determine a well-cut stone.

Cuts are influenced heavily by fashion: the baguette cut—which accentuates a

diamond's luster and downplays its fire—was all the rage during the Art Deco period,
whereas the princess cut cut—which accentuates a diamond's fire rather than its luster
—is currently gaining popularity.

31
The princess cut is also popular amongst diamond cutters: of all the cuts, it wastes the
least of the original crystal. The past decades have seen the development of new
diamond cuts, often based on a modification of an existing cut. Some of these include
extra facets. These newly developed cuts are viewed by many as more of an attempt at
brand differentiation by diamond sellers, than actual improvements to the state of the
art.

QUALITY

The quality of a diamond's cut is widely considered the most important of the four Cs in
determining the beauty of a diamond; indeed, it is commonly acknowledged that a well-
cut diamond can appear to be of greater carat weight, and have clarity and color appear
to be of better grade than they actually are. The skill with which a diamond is cut
determines its ability to reflect and refract light.

In addition to carrying the most importance to a diamond's quality as a gemstone, the

cut is also the most difficult to quantitatively judge. A number of factors, including
proportion, polish, symmetry, and the relative angles of various facets, are determined
by the quality of the cut and can affect the performance of a diamond.

A poorly cut diamond with facets cut only a few degrees out of alignment can result in
a poorly performing stone. For a round brilliant cut, there is a balance between
"brilliance" and "fire." When a diamond is cut for too much "fire," it looks like a cubic
zirconium, which gives off much more "fire" than real diamond. A well-executed round
brilliant cut should reflect light upwards and make the diamond appear white when
viewed from the top.

An inferior cut will produce a stone that appears dark at the center and in some extreme
cases the ring settings may show through the top of the diamond as shadows.

Several different theories on the "ideal" proportions of a diamond have been and
continue to be advocated by various owners of patents on machines to view how well a
diamond is cut.

These advocate a shift away from grading cut by the use of various angles and
proportions toward measuring the performance of a cut stone. A number of specially
modified viewers and machines have been developed toward this end. Hearts and
Arrows viewers test for the "hearts and arrows" characteristic pattern observable in
stones exhibiting high symmetry and particular cut angles.

Closely related to Hearts and Arrows viewers is the ASET which tests for light leakage,
light return, and proportions. The ASET (and computer simulations of the ASET) are
used to test for AGS cut grade.

These viewers and machines often help sellers demonstrate the light performance
results of the diamond in addition to the traditional 4 Cs. Detractors see these machines
as marketing tools rather than as scientific tools.

The GIA has developed a set of criteria for grading the cut of round brilliant stones that
is now the standard in the diamond industry and is called Facet ware.

32
PROCESS

The famous 253-carat Oppenheimer diamond crystal, at a 2001 diamond exhibition in

Paris. An uncut diamond does not show its prized optical properties.

The process of shaping a rough diamond into a polished gemstone is both an art and a
science. The choice of cut is often decided by the original shape of the rough stone,
location of the inclusions and flaws to be eliminated, the preservation of the weight,
popularity of certain shapes amongst consumers and many other considerations. The
round brilliant cut is preferred when the crystal is an octahedron, as often two stones
may be cut from one such crystal.

Oddly shaped crystals such as macles are more likely to be cut in a fancy cut—that is, a
cut other than the round brilliant—which the particular crystal shape lends itself to.
Even with modern techniques, the cutting and polishing of a diamond crystal always
results in a dramatic loss of weight; rarely is it less than 50%. Sometimes the cutters
compromise and accept lesser proportions and symmetry in order to avoid inclusions or
to preserve the carat rating.

Since the per carat price of diamond shifts around key milestones (such as 1.00 carat),
many one-carat diamonds are the result of compromising "Cut" for "Carat." Some
jewelry experts advise consumers to buy a 0.99 carat diamond for its better price or buy
a 1.10 carat diamond for its better cut, avoiding a 1.00 carat diamond which is more
likely to be a poorly cut stone.

LIGHT PERFORMANCE

In the gem trade the term light performance is used to describe how well a polished
diamond will return light to the viewer. There are three light properties which are
described in relation to light performance; brilliance, fire, and scintillation. Brilliance
refers to the white light reflections from the external and internal facet surfaces.

Fire refers to the spectral colors which are produced as a result of the diamond
dispersing the white light. Scintillation refers to the small flashes of light that are seen
when the diamond, light source or the viewer is moved. A diamond that is cut and
polished to produce a high level of these qualities is said to be high in light
performance.

The setting diamonds are placed in also affect the performance of light through a
diamond. The 3 most commonly used settings are: Prong, Bezel, and Channel. Prong

33
settings are the most popular setting for diamond jewelry. The prong setting consists of
four or six 'claws' that cradle the diamond, allowing the maximum amount of light to
enter from all angles, allowing the diamonds to appear larger and more brilliant. In
bezel settings the diamond or gemstone is completely surrounded by a rim of metal,
which can be molded into any shape to accommodate the stone.

Used to set earrings, necklaces, bracelets, and rings, bezel settings can have open or
closed backs, and generally can be molded to allow a lot of light to pass through.
Channel settings set the stones right next to each other with no metal separating them.
This setting is mostly used in wedding and anniversary bands. The outer ridge is then
worked over the edges of the stones to create a smooth exterior surface. This also
protects the girdle area of the stone.

FLUORESCENCE

About a third of all diamonds will glow under ultraviolet light, usually a blue color
which may be noticeable under a black light or strong sunlight. According to the GIA,
who reviewed a random sample of 26,010 natural diamonds, 65% of the diamonds in
the sample had no fluorescence. Of the 35% that did have fluorescence, 97% had blue
fluorescence of which 38% had faint blue fluorescence and 62% had fluorescence that
ranged from medium to very strong blue.

Other colors diamonds can fluoresce are green, yellow, and red but are very rare and
are sometimes a combination of the colors such as blue-green or orange. Some
diamonds with "very strong" fluorescence can have a "milky" or "oily" look to them,
but they are also very rare and are termed "over blues."

Their study concluded that with the exception of "over blues" and yellow fluorescent
diamonds, fluorescence had little effect on transparency and that the strong and very
strong blue fluorescent diamonds on average had better color appearance than non-
fluorescent stones.

Since blue is a complementary color to yellow and can appear to cancel it out, strong
blue fluorescence had especially better color appearance with lower color graded
diamonds that have a slight yellowish tint such as "I" color or "J" color but had little
effect on the more colorless "D" through "F" color grades.

CLEANING

Cleanliness heavily affects a diamond's beauty. A clean diamond is more brilliant and
fiery than the same diamond when it is "dirty". Dirt or grease on the top of a diamond
reduces its luster. Water, dirt, or grease on the bottom of a diamond interferes with the
diamond's brilliance and fire.

Even a thin film absorbs some light that could have been reflected to the person looking
at the diamond. Colored dye or smudges can affect the perceived color of a diamond.
Historically, some jewelers' stones were misgraded because of smudges on the girdle,
or dye on the culet. Current practice is to clean a diamond thoroughly before grading its
color.

34
Maintaining a clean diamond can sometimes be difficult as jewelry settings can
obstruct cleaning efforts and oils, grease, and other hydrophobic materials adhere well
to a diamond's surface. Many jewelers use steam cleaners. Some jewelers provide their
customers with ammonia-based cleaning kits; ultrasonic cleaners are also popular.

Besides being the largest consumer of gold, India is also the leading diamond cutting
nation in the world.

The Indian gems and Jewellery industry is competitive in the world market due to its

Low cost of production and availability of skilled labour. The industry has a worldwide
distribution network, which has been established over a period of time. India has set up
more than 3,000 offices worldwide for promotion and marketing of Indian diamonds.

The Indian diamond industry has acquired position in cutting and polishing of rough
diamonds. India has the world’s largest cutting and polished industry. It is employing
around 800,000 people (constituting 94 percent of global workers) with more than 500
hi-tech laser machines.

The industries are well supported by government policies and in the banking sector
around 50 banks provide nearly US$ 3 billion credit to Indian diamond industry.

In India there are more than 6000 players in domestic diamond processing industry.
The average gestation period for setting up a diamond cutting and polished unit is 15
months. The low gestation period, coupled with low capital cost allows easy entry into
the sector. This has led to the industry being largely characterized by a large number of
small scale players.

However, just as in the case of Jewellery, the share of the organized sector has
increased significantly in recent years due to an increase in demand for better and finer
quality finished goods.

PRESENCE OF TRADITIONAL POCKETS OF JEWELLERY

MANUFACTURE:-

Jewellery crafting by traditional goldsmiths is confined to a few regions in India. These

pockets are widely separated and involve craftsmen whose skills have been handed
down over generations. Surat is an important diamond processing centre, which exports
around 80 percent of the production and has more than 3,500 diamond processing units.

35
While these clusters have evolved over time based on the availability of raw materials,
skilled labour and market potential, these have been developed and made competitive
through support from the Government of India through its special economic zones and
cluster development programmes.

The clusters help in building a globally competitive environment for the Indian gems
and Jewellery industry.

DIAMOND JEWELLERY RETAILING:-

India has a large and growing domestic diamond Jewellery market. Diamond Jewellery
retailing in India is undergoing a slow transformation from a largely unorganized sector
to a more organized one.

While the family Diamond Jewellery store remains the predominant retail format, new
formats such as supermarkets and gold souks are displaying growing preference for
quality, designs and branding. The diamond Jewellery retailing sector can offer long
term benefits to organized player investing in this area.

CERTIFICATION:-

Following the statement of World Diamond Council’s, on adopting credible and

effective measures against the trade in conflict gems. The Indian government has
tightened its certification process for international trade. The Gems and Jewellery
Promotion Council is India’s certification authority. The government’s Central Board
of Excise and Customs has banned the import or export of rough diamond shipments,
which are not accompanied by a Kimberley Process certificate launched in Switzerland.
Certification for quality diamond and Jewellery has given a fillip to exports and
resulted in greater acceptance to Indian product in the world market.

36
TECHNOLOGY:-

The Indian diamond industry has made rapid strides in design, powered by a new
generation of young professionally trained, technology driven designers. Many of
India’s diamond Jewellery manufacturing facilities are equipped with the latest CAD/
CAM and other advanced design system. Technology solutions are also available for
production control, supply chain and inventory management in the Jewellery industry.
The Special economic Zones and Gems and Jewellery Parks developed in different
states offer technology-enabled environment that are conductive to growth and quality
production.

The diamond industry in India is a good blend of modern manufacturing and design
techniques with traditional skills of the Indian artisan. The Indian industry is also
compliant with international norms such as the Kimberly Process and the Patriot Act,
etc.

37
Export of Diamond

(Value US $ in million)
year
year year year year year year
06-07
ITEM 00-01 01-02 02-03 03-04 04-05 05-06
(P)

Cut &
polish
6,648 6,187 7,972 8,627 11,181 11,856 10,910
diamond

Export
of Rough
135 157 142 535 357 566 564
diamond

Total
6,783 6,344 8,114 9,162 11,538 12,438 11,474
Export

Exchange Rate:- Export

Year 2006 1US $=1Rs. 45.21
Year 2005 1US $=1Rs 43.84
Year 2004 1US $=1Rs 45.27
Year 2003 1US $=1Rs 46.59
Year 2002 1US $=1Rs 48.39

(SOURCE:-gjepc)

38
Exports of diamond have also been growing:-

14,000
US $ (in million)

12,000
10,000
8,000
6,000
4,000
2,000
0

P)
9

6
-0

-0

-0
-9

-0

-0

-0

-0

7(
98

99

00

01

02

03

04

05

-0
06
year

CAP DIAMOND EX.OF RGH. DIA. TOTAL

India exported cut and polished diamonds worth US $ 11,181 million in 2004-05, up
from US $ 7,972 million in 2003-04, registering a growth of 29.6 percent. India has
also started exported of rough diamond, which formed 4 percent of germs and
Jewellery exports in 2004.

Exports of diamond from India primarily happened out of units based in the Special
Economic Zones (SEZs) and Export Promotion Zones (EPCs). Examples include
Santacruz Elecrtonics Export Processing Zones (SEEPZ, Mumbai), Madras Export
Processing Zones (MEPZ, Chennai) and Noida Export Processing Zone (NEPZ,
Noida). These supply primarily diamond-studded Jewellery. Gems and Jewellery sector
contributes to more than 50% of SEEPZ exports. Taking view of this fact, the
government has simplified export procedures wherever possible and several other
promotional measures have been implemented.

The main markets of USA, Middle East and Europe account for the highest percentage
of total diamond exports.

39
Export of Cut & Polished Diamond to Major Market:- (Value US $ in millions)

Country 98-99 99-00 00-01 01-02 02-03 03-04 04-05

U.S.A. 1,900 2,442 2144 19972 2258 2553 2584

Hong Kong 1,219 1803 1669 1600 1915 2463 3042
U.A.E. 872 915 908 842 930 1038 1261

Belgium 62 135 258 344 424 795 1845

Israel 242 367 268 263 438 576 700

Japan 345 453 375 329 353 401 468

Thailand 96 161 179 215 207 200 263
U.K. 35 35 39 32 95 75 60

Singapore 64 98 101 135 171 580

96

Switzerlan
97 109 110 119 132 236 162
d
Germany 38 42 36 29 28 34 44
Australia 20 24 22 25 34 49 56
Others 32 56 72 101 154 58 109

Total 5,022 5,800 6,181 5,967 7,103 8,649 11,174

40
THE DIAMOND INDUSTRY IS DEPENDENT ON IMPORTS OF DIAMONDS:-

The main raw material for the diamond industry is rough diamonds. The industry is
highly dependent on imports for its requirement. Rough diamonds are imported.

COUNTRY WISE DETAIL ON IMPORT OF ROUGH DIAMONDS:-

India imports all its requirements of rough diamonds. India imported rough diamonds
worth US $ 8,408 million in 2006, compared to US $ 8,767 million in 2005. The
imports of diamonds in India have grown at CAGR of around 10 percent over the last
four years. The imports are in accordance with the demand in the domestic and exports
markets.

INDIA’S CAPABILITIES IN DIAMOND PROCESSING CAN BE LEVERAGED

TO MOVE UP THE VALUE CHAIN:-

41
India’s significance in the global gems and Jewellery industry can be largely attributed
to its strength in diamond processing. Value enhancement by the Indian diamond
processing industry is the highest among other countries.

42
VALUING DIAMONDS:-

The quality and value of diamonds are measured by four characteristics known as the
4C's. The 4C's relate to a diamond's cut, color, and clarity and carat weight. The
quality of a diamond is measured by its cut, color and clarity. The carat weight
measures the size of the diamond. Of all the 4C's, cut is the characteristic directly
influenced by man; color, clarity and carat weight are all dictated by nature.

CUT

A diamond in its natural, uncut state is described as a "rough diamond". Its natural
appearance so resembles a glass pebble that most people would pass it by without a
second glance. It is the skill of the diamond cutter that unlocks the brilliance for which
diamonds are renowned.

If two identical diamonds are placed side by side and one is less brilliant and fiery
than the other, the fault lies in the cutting. Such a stone cannot demand as high a price
as a well-cut diamond.

It is important to distinguish between cut and shape. Some of the more popular shapes
of diamonds include Round Brilliant, Oval, Marquise, Pear, Heart and Emerald.
Within each of these shapes, however, it is the cut that determines the quality of the
stone. For example, most diamonds are cut with 58 facets, regardless of their shape.

COLOR

A diamond's color is one of the most important factors in determining its value. The
nearer a white diamond is to being absolutely colorless, the more rare and valuable it
is. The graduations in color are so subtle that intricate international grading scales
have been devised.

Diamonds are graded into categories defined by letters. The color range from
exceptional whites (categories D, E and F) to tinted colors (categories M to Z). The
best way to pinpoint a diamond's true color is to place it next to another diamond that
has previously been graded.

There are also fancy colored diamonds and these are graded according to their
intensity of color, not lack of it. There are a variety of reasons for diamonds to be
colored. The most common causes, or suggested causes, for the colors yellow, green,
blue, brown and pink are described below.43
COMPETITAIVE ADVANTAGES:-

The factors leading to the Indian diamond industry’s growth are many. A near
dominance in diamond stones, manufacturing excellence, forward looking
entrepreneurs, liberalized government policies and an extensive international
marketing network has helped India establish itself as one of the leading Jewellery
centers in the world.

India’s competitiveness in gems and Jewellery industry can be assessed as

follows:-

44
AVAILABILITIY OF FACTOR CONDITIONS:-

Availability of skilled manpower is key strength that has enabled growth in India’s
diamond Jewellery sector. India has a large pool of skilled artisans with vast
traditional knowledge and expertise in diamond Jewellery making. It also has the
largest resource pool in diamond cutting and processing. India also has a good blend
of technically trained designers who are well-versed in latest 2D and 3D software.

India has a comparative advantage in terms of cost as well. It has one of the lowest
costs in diamond cutting- the cost per carat for cutting diamond was US $ 10 in India
in 2004 as compared to US $ 17 in China and US $ 150 in USA.

This makes diamond sourced from India much more profitable. For example,
diamond Jewellery, Which costs between US $ 60 and US $ 90, can be sold in
overseas market for US $ 180.

Low cost skilled labour coupled with advanced technical capabilities provides the
right platform for the Indian gems and Jewellery sector to grow and become globally
competitive.

FRAGMENTAED STRUCTURE AND INTENCE COMPETITION FOSTER

INNOVATION:-

45
The fragmented nature of the industry, and gradual emergence of the organized sector,
including global players, has increased the competitive pressures within the gems and
Jewellery sector in India. In this scenario, companies are experimenting different
strategies to maintain and increase market share.

Companies are innovating in design, retail format, and network and branding, to
remain competitive. Examples include:-

 Design:

With exclusive design and guaranteed product quality.

Different companies are packaging their designs in the form of exclusive
Collections to differentiate themselves and build brand equity.

 Retail format, network

In order to increase product visibility, Gili struck alliances with several

Leading lifestyle and department stores to display their trendy range of
Products.

Gili has placed its catalogue on its web site to encourage NRIs to buy gifts
online for his friends and family in India.

Even organized retail chains are promoting diamond Jewellery sales through
their retail outlets.

Big-Bazaar is lunching a Diamond Jewellery section.

Supermarkets like Lifestyle and Shoppers Stop have Jewellery Outlets.

Increasing competition in the industry has ensured that firms work towards increasing
their productivity and innovation, thereby improving overall capability levels within
the industry.

FAVORABALE DEMAND CONDITION:-

Many socio-economic factors influence the high demand for gems and Jewellery in
India. The main driver of demand in India is still the investment factor – gold and
diamond Jewellery is regarded as investment, as they can be easily converted to cash
either through sale or for guarantying loans.

Changing consumer demographics are, however, leading to different demand drivers,

which promise future growth potential for the industry.

LARGE TARGET CONSUMER BASE AND RISING INCOME LEVELS:

46
India ‘s population is nearly 23 per cent of the global population and is one
of the most attractive consumer markets in the world today. Income levels
across population segments have been growing in India.

While the growth of the consuming class. Defined as those with an annual income of
US $ 980 or above, is driving overall demand for consumer products, the significant
trend for the gems and Jewellery sector is the emergence of a significant population of
high net worth individuals (HNIs).

Who have the capability to invest more than US $ 1 million though the number of
HNIs is small in India, they are growing at the rate of around 14.6 percent compared
to around 4-6 percent in case of other countries as exhibited in the graph. NCAER
MISH survey, 2002 has predicted that there will 140,000 households with income
greater than US $ 0.22 million and 250,000 households with income between US $
0.11 million to US $ 0.22 million in 2010.

This segment of rich and super rich people is also one of the fastest growing segments
in India.

Another positive aspect for the industry is that HNIs are increasingly looking at
alternative investment options (other than Banks, Real Estate or Equity). Jewellery,
particularly gold, has been traditionally a value storage mechanism in India. Therefore
growth in investment options by HNIs can lead them to look at increased Jewellery
purchases.

47
Source: - World Wealth Report, KPMG Analysis

CHANGING LIFESTYLES:-

Urban consumers in India have become more exposed to western lifestyles, primarily
though overseas travel. This has led to increased preference for product and designs
that are popular abroad. For example, there is a shift towards preference for machine
made diamond Jewellery over the traditional handcrafted Jewellery.

Demand for branded Jewellery has also been increasing. As the quality, reliability and
wear ability of the Jewellery is becoming important.

With these emerging trends, the demand for branded diamond Jewellery is further
expected to increase. These are also an increasing demand for diamonds. Colored
gems, synthetic stones and other gems.

48
DIFFERENCES BETWEEN TRADITION AND EMERGING TREANDS:-

With the growing awareness and influence of the west, the Indian consumers are
becoming highly demanding and sophisticated, requiring better quality of products
and services. This puts pressure on the players to consistently improve their product
and services quality levels, thereby improving the overall competitiveness of the
industry.

PRESENCE OF RELATED & SUPPORTING INDUTRIES:-

India has a large number of institutions to support the designing and development of
Diamond Jewellery in India. Various institutes across the country offer diploma
courses in Jewellery designing. There are several training institutions for imparting
training in diamond and gem processing industry. The prominent ones are listed
below:

1. THE GEM & JEWELLERY EXPORT PROMOTION COUNCIL (GJEPC):-

Set-up in 1966, the GJEPC has over the years effectively molded the scattered efforts
of individual exporters to make the gem and jewellery sector a powerful engine
driving India's export-led growth. This apex body of the gem & jewellery industry has
played a significant role in the evolution of the Indian gem and jewellery industry to
its present stature. GJEPC is continuously working towards creating a pool of artisans
and designers trained to international standards so as to consolidate the Indian
jewellery industry and establish it as a prominent global player in the jewellery

49
segment.

With strength of 6,500 members' spread all over the country, the Council is primarily
involved in introducing the Indian gem & jewellery products to the international
market and promotes their exports.

To achieve this, the Council provides market information to its members regarding
foreign trade inquiries, trade and tariff regulations, rates of import duties, and
information about jewellery fairs and exhibitions.

The role of GJEPC can be broadly classified under the following categories:

I. Trade Facilitator

The Council undertakes direct promotional activities like organizing joint

participation in international jewellery shows, sending and hosting trade delegations,
and sustained image building exercises through advertisements abroad, publications
and audio-visuals.

GJEPC also invites countries to explore areas of co-operation in supply of rough

diamonds and rough colored stones as well as offers co-operation in jewellery
manufacturing. The Council regularly communicates with Indian Embassies, trade
bodies and associations in various countries. And finally, GJEPC also organizes
seminars, buyer-seller meets, symposiums.

II. Advisory Role

A crucial area of activity of the Council has also been aiding better interaction and
understanding between the trade and the government. The Council takes up relevant
issues with government and agencies connected with exports and submit documents
for consideration and inclusion in the Exim Policy. The Council also grants
membership, registration certificates and performs other roles as per the Exim Policy.

III. Nodal Agency for Kimberly Process Certification Scheme

GJEPC works closely with the Government of India and the trade to implement and
oversee the Kimberly Process Certification Scheme. To that effect, the Council has
been appointed as the Nodal Agency in India under the Kimberly Process
Certification Scheme.

IV. Training and Research

The Gems & Jewellery Export Promotion Council runs a number of institutes that
provide training in all aspects of manufacture and design in Mumbai, Delhi, Surat and
Jaipur. These training programs are being conducted to ensure that the Indian industry
achieves the highest levels of technical excellence.

V. Varied Interests

The Council also publishes a number of brochures, statistical booklets, trade

directories and a bi-monthly magazine - Solitaire International, which is distributed
50
internationally as well as to its members. Finally, the Council has also developed its
own promotional audiovisual film - 'India - Your First Choice', which is dubbed in
various international languages as well as screened at various trade shows.

A)- UNDER THE AUSPICES OF GJEPC:

1. Indian Diamond Institute, Surat:

Courses in diamond, Gems and Jewellery and Computers; Established in
1978; Enrolment: About 350 students.

2. Indian Gemological Institute, New Delhi:

Gem Testing Laboratory and Gemology Courses; Established in 1980.

3. Gem Testing Laboratory, Jaipur:

Gem Testing Services have Courses in Gemology and Technical services to
overseas buyers.

4. Jewellery Product Development Centre, Mumbai:

Short-term courses are available in Jewellery.

5. Jewellery Product Development Centre, New Delhi:

Seminars and Workshop-cum-Training programmes for jewellery industry with
Technical assistance.

B) PRIVATE SECTOR INSTITUTIONS:

A S.G. Centre for Diamond Technology, Vile Parle (W), Mumbai

The institution is situated within the campus of Shri Bhagubhai Mafatlal
Polytechnic and conducts a comprehensive diploma course in Diploma
Technology.

B Gemological Institute of India, Mumbai

Founded by the Gem and Jewellery Exporters’ Association, Mumbai in 1971,
Diploma course in Gemology and Diamond Course , both of which are resident
programmes, Correspondence Course in Gemology, Pearl Course, Jewellery
Designing Course. Jewellery Casting Course, gemstones testing through its
Gem Testing Laboratory.

2. GEM AND JEWELLERY COMPLEX WITHIN SEEPZ (SANTACRUZ

ELETRONICS EXPORT PROCESSING ZONE)

SEEPZ was initially established with a view to exploit the growing world trade in
electronics. It came into being in September 1974 on about 100 acres of land taken on
a 99 year lease from the state government of Maharashtra in the Marol Industrial
Area, Mumbai.

SEEPZ has a vast commercial, industrial and social infrastructure. Various facilities
such as factory space, power, water, in-zone customer clearance, warehousing,
communication, canteen, etc. are provided within the Zone.

Although SEEPZ was initially set up for 100% export production of electronics,
51
during 1986-87 the government decided to create a gems and jewellery complex in
SEEPZ for the 100% export of gems and jewellery items.

Various concessions and facilities have been granted to those who set up production
in the zone.

3. INDIAN DIAMOND INSTITUTE (IDI), SURAT

IDI is jointly aided by Ministry of Commerce, Government of India and The Gem and
Jewellery Export Promotion Council, IDI is located in Gujarat.

4. DIAMOND TRADING COMPANY (DTC)

5. DIAMOND PLAZA CUSTOMS CLEARENCE CENTRE

GOVERNMENT REGULATIONS AND SUPPORT:-

The Government of India (GoI) has been working to develop the gems and jewellery
industry in India through several initiatives.

 The Indian gems and jewellery export industry had its modern beginning in
the 1960s, when the Government of India introduced the Replenishment
(REP) license, allowing an importer to import rough diamonds worth 80 per
cent of the value of his exports. The REP license thus provides the foreign
currency needed to purchase rough to manufacture the relevant type of
polished diamonds.

 At the outset, a 45 per cent customs duty was levied on rough diamond
imports, but this duty was reduced to NIL in the Union Budget of 2003-04.

 Indian gems and jewellery have been acknowledged the world over for its
exquisite craftsmanship. The country is a rich source of many precious and
semi precious stones. India has also been the largest purchaser of gems stones,
rough diamonds and precious metals for value addition and exports besides
providing a large domestic market for jewellery and cut-diamonds.

 The EXIM Policy for 2002-07 contains a special focus on exports of gems
and jewellery through market access initiative schemes, duty free imports and
appropriate adjustments in value addition norms.

 India’s gems and jewellery industry is one of the foremost foreign exchange
earners for the country and accounted for highest per cent of the country’s
total exports during the fiscal year 2006-07.

 Diamond exports accounted for over 85 per cent of India’s total gems and
jewellery exports in 2005-06. India’s international market share of diamonds
is 60 percent by value. It plans to achieve a market share of 80 percent in 2008
and 85 percent in 2010.

52
 The USA accounts for the largest share in India’s gems diamond exports,
followed by Hong Kong and Belgium.

 India’s Gems and Jewellery Exports Promotion Council (GJEPC) is aiming at

turning India into an International Diamond Trading Centre.

 the major part of the jewellery produced in the country is handcrafted. GJEPC
is involved with training and technology enhancement of Indian artisans to
help them cater to the world market.

 This is to ensure that artisans learn the design nuances preferred in the West
that are significantly different from India.

 after the economic liberalization in 1990-91, gold prices in India are now at
par with world prices. The prospects for an increase in exports of gold
jewellery and diamond-studded gold jewellery have increased considerably.

 The Indian gems and jewellery units have set up a worldwide network of
offices, including in Europe, Japan, USA, South East Asia and the Middle
East.

 The government has set up various special economic zones (SEZ) for gems
and jewellery industry with specific incentives provided to units in SEZs.
Gems & jewellery units in SEZs and Export Oriented Units (EOUs) can
receive precious, viz, Diamond prior to exports or post exports equivalent to
value of jewellery exported. This means that they can bring export proceeds in
kind against the present provision of bringing in cash only.

IN ORDER TO GIVE A BOOTS TO EXPORTS OF GEMS AND

JEWELLERY,
GOVERNMENT TOOK MAJOR POLICY INTITATIVE DURING
2005-06.

 lowering import duty on platinum from US$ 12.2 per 10 gms to US$ 4.64.

 exempting rough colored precious gems stones from the customs duty at the
first
 stage itself eliminates claiming reimbursements later.

 Rough semi precious stones are already exempt, aimed to further increase the
 exports of studded jewellery and platinum jewellery.

THE POLICIES FOR THIS SECTORANNOUNCED IN THE

FOREIGN TRADE POLICY INCLUDE:

 Duty free re-import entitlement for rejected jewellery up to 2 per cent of

Freight
 on Board (FOB) value of exports.

53
  There is increased duty free import of commercial samples of Jewellery to
US$ 2232.1.

POLICIES INITIATIVES:

 Key policy initiatives contributing to the improved and promising statistics for
this sector include.
 Custom Duties completely waived the import of rough diamonds. The
licensing regime for rough diamonds has also been abolished. This will help
the country emerge as a major international centre for diamonds.
 India is the largest processor of diamonds in the world.
 Personal Carriage of Jewellery is permissible through Hyderabad and Jaipur
Airport as well, in addition to Delhi, Mumbai, Kolkatta, Chenai and
Bangalore.
 Value addition norms for export of plain diamond jewellery have been
reduced from 10 per cent to 7 per cent. Export of all mechanized unstudded
jewellery is allowed at a value addition of 3 per cent. Having already achieved
a leadership position in diamonds, efforts will now be made for achieving a
substantial increase in all types’ jewellery exports as well.
 The government is set to permit 100% foreign direct investment (FDI) in
mining of diamonds and precious stones, where FDI cap at present is 74%.
The move is expected to facilitate induction of modern mining technologies
and reduce the dependence of thriving gems and jewellery industry on raw
diamonds imported from Australia and South Africa.

Global diamond majors like Rio Tinto and De Beers who are already operating in the
country through subsidiaries would be encouraged to step up their investments in the
country once the FDI cap is knocked off, according to senior officials.

The department of industrial policy and promotion (DIPP), in fact, favored a

“rationalization” of the FDI policy in the mining sector by total opening up. 100%
FDI would be permitted in coal mining by cement and steel companies, Diamond
deposits in South Africa are being depleted fast.

There are few new mining ventures in Australia and Canada too. In this context, India
will have to aggressively tap domestic resources for raw diamonds, tremendous scope
for reducing wastage of the non-metallic resource during mining, if modern
technologies are employed.

The mining sector has also been facing problems regarding environmental protection
and tribal rehabilitation. As most of the country's mining reserves lie in the forest
area, both the government and industrialists are facing resistance from locals

The minister hoped that the country would be able to mine gold and diamonds worth
at least Rs 10-15 lakh crore in the next five years with the help of global mining
giants Rio Tinto, BHP Billiton and De Beers.

India imports gold and diamond worth Rs 140 lakh crore, of which diamonds
comprise Rs 75,000 crore.

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GEMS & JEWELLERY INDUSTRY:-
IN THE FOREFRONT OF GLOBALISATION:

In the gems and jewellery industry, the cottage-based diamonds processing and
jewellery making units compete with modern factories using state-of-the-art
machinery and computerized operations.

Modernization and technology absorption through capital goods imports have given a
cutting edge to both diamond processing and jewellery manufacture in India. As a step
in operational integration, more and more diamond manufacturers have set up
jewellery manufacturing units as well, creating an invaluable synergy in the gems and
jewellery industry.

The Indian gems and jewellery units have set up a worldwide network of offices in
Antwerp, New York, London, Tokyo, Hong Kong, Singapore, etc. One can find the
offices of Indian gems and jewellery units in every hotspot on the diamond industry
map of Europe, Japan, USA, Israel, South East Asia and the Middle East.

The phenomenal growth in gems and jewellery exports is a record for among the
large Indian export sectors. In fact, the gems and jewellery industry presents itself as
a perfect case study for discussing how to build competitiveness of Indian industries.

The diamantine and jewellery makers and their devoted and skilled artisans have
shown that even an unorganized industry can achieve international competitiveness.
The Indian gems and jewellery industry was the first one to absorb and assimilate the
true spirit of globalization by integrating itself with the world gems and jewellery
industry.

GEOGRAPHIC SPREAD OF GEMS & JEWELLERY INDUSTRY:-

The diamond processing industry has spread from the State of Gujarat, which accounts
for almost 80% of the diamonds processed in India, to other States. Surat,
Ahemedabad and Bhavnagar are the diamond centers in Gujarat. Many diamond
processing units have been set up in Mumbai in Maharashtra.

There are also diamond processing units in Trichur in Kerala, Coimbatore in Tamil
Nadu, Jaipur in Rajasthan and also in Goa. Mumbai continues to be the main trading
centre for diamond exports. Ninety-three per cent of diamond exports are dispatched
through Mumbai airport.

SOCIO-ECONOMIC CONTRIBUTIONS OF GEMS & JEWELLERY

INDUSTRY:-

The Indian gems and jewellery industry has proved its mettle in international
competitiveness. Simultaneously, it has also made significant socio-economic
contributions:

i. Employment generation with low investment: The investment required for creating
employment in the diamond processing and jewellery-making units is quite low. The
Employment generation in other industries calls for heavy investments.

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ii. Hard currency foreign exchange earnings: The countries to which India exports
Diamond jewellery are among the hard currency areas. The industry contributes
continuously to the country's foreign exchange reserves.

iii. Pollution-free industry: Diamond processing and jewellery manufacture do not

pollute the environment, neither air nor water.

iv. Environmental friendly industry: Being an import-based industry, it does not

deplete natural resources and also leaves the flora and fauna in tact.

v. Assists in urban decongestion: Through decentralized location, the gems and

jewellery industry helps in the removal of unemployment in the rural sector,
prevention of migration to cities and the avoidance of slums in the urban areas.

vi. Low Power Consumption: The gems and jewellery manufacturing processes do not
aggravate the country's energy problems.

vi. No burden on the country's transport infrastructure: The raw materials as also the
finished products are of high-value but of low weight. They do not put any burden on
the country's road, rail, sea or air transport.

MINING DIAMONDS :-

Of all the diamonds mined in the world each year, less than half are gem quality; the rest
fall into two other main categories known as near-gem quality and industrial quality
diamonds.

Gem quality diamonds display a high standard of excellence in quality and are used in
jewellery. The clarity of these diamonds ranges from flawless through to visible
inclusions.

Near-gem quality diamonds represent those stones of a quality between gem and
industrial that in fact can be used as either depending on the individual stone. These
stones have clarity grades ranging from visible inclusions through to industrial.

Industrial quality diamonds are low quality or badly included stones and are suitable
only for industrial use; for example, they are used in dentist's drills and earthmoving
equipment.

DIAMOND MINING :-

Diamonds are recovered by way of pipe or alluvial mining.

Pipe Mining

Pipe mining refers to the extraction of diamonds from volcanic pipes. Typically, a very
large area has to be covered. An average of 250 tonnes of ore must be mined in order to
produce a one-carat gem quality polished diamond.

In most countries, a diamond pipe mine is composed of kimberlite, or blue ground.

Initially kimberlite is dug from the surface of the pipes in rough opencast mining.
56
Once the surface deposits have been exhausted, shafts are sunk into the ground at the
edge of the pipes, and tunnels are driven into the deeper parts of the pipes.

After the diamond-bearing rock is brought to the surface, it is then transported to a

screening plant where the diamonds are separated from the host rock.

Alluvia-mining

This process involves the extraction of diamonds from riverbeds or ocean beaches.
Millions of years ago, at the time the diamond pipes were formed, some diamonds were
weathered out of the pipes and carried great distances along rivers and even into oceans.
In order to extract these diamonds from beaches, a wall is built to hold back the surf. Up
to 25 meters of sand is bulldozed aside to reach the diamond-bearing level. Once
reached, the diamond-bearing earth is removed and transported to screening plants.

DIAMOND CUTING AND POLISHING:-

The history of diamond cutting and polishing has its origins in India, where it was
discovered a long time ago by Indian lapidaries that a diamond could be made to glisten
simply by grinding another diamond against it.

Nowadays the diamond and its powder play an important role in the cutting and
polishing of diamonds. Over time modern machinery has replaced traditional diamond
cutting tools.

Diamond cutting and polishing requires anywhere from several hours to several months
to complete. During this process, a diamond will lose on average half of its original
weight.

Diamond-Cutting

As every diamond is different, a stone must first be carefully examined by the cutter and
then marked for cutting. Of all the cuts, the most popular is the round brilliant because
of its ability to give a stone the greatest possible brilliance and fire with the most
minimal amount of weight loss. The following cutting and polishing procedures uses the
round brilliant cut as an example.

The rough diamond is divided into two parts by sawing or cleaving. Most stones are
sawn across the "grain" (visible evidence of the diamond's crystal structure) by a paper-
thin metal disc coated with diamond dust revolving at high speed or by laser. The stones
that are marked for cleaving are split along the grain by a single blow from a steel blade.
After cleaving or sawing, the corners of the diamond are rounded off by a process
known as bruiting or girdling (only round brilliant cuts require this step). The stone is
cemented into a "lathe", a holder that fits on a turning shaft. Another diamond is
cemented to the end of a long rod held under the bruter's arm. As the lathe rotates, the
two diamonds are brought together and grinded to shape. Diamond dust is produced
from this action and is used in further sawing and faceting.

The brilliant now has a girdle-a sort of rim at the widest part by which it is usually set.
The size or position of the girdle should not change throughout the rest of the diamond
cutting process.
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Diamond Polishing

The polishing of the diamond begins; one by one, facets will be ground on to the stone.
A facet is the tiny plane or surface that traps the light and makes a diamond sparkle.
Most diamond cuts have 58 facets.

The facets are applied to the diamond on a "turntable", made of porous iron, which has
been coated with diamond dust and oil. The diamond is set into a holder and held
against the turntable as it revolves at a very high speed.

A diamond has been cut well when its facets are clean, sharp, and symmetrical, and the
proportions above and below the girdle are correct. A diamond is correctly proportioned
when one-third of the total weight of the gem is above the girdle and two thirds below.
A well-cut diamond will be fiery, brilliant and beautiful.

DIAMOND MINE LOCATIONS IN AUSTRALIA:-

Today, diamonds are mined in at least 20 countries around the world; the majority of
diamonds are found in Australia, Zaire, Botswana, Russia and South Africa. The Argyle
Diamond Mine, the world's largest diamond-producing mine, is located in the Kimberley
Region of north Western Australia.

INDIAN DIAMONDS INDUSTRY:-

UNDISPUTED WORLD LEADER

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The industry today is a result of perseverance and hard work as we see it. After India
became independent in 1947, for several years, the nation’s economy was in
depression. Several views for business and commerce opened up as new policy came
into place, journey towards progress and development also began for the diamond
industry.

The diamond industry was scattered cottage industry only three decades ago. Now it
gradually evolved into a modern, mechanized, large-scale operation. Today, with state
of art laser machines, lathes and diamond-impregnated scaives, most of the medium
and large-sized diamond factories are well operational.

Diamond exports represent the lion's share of the country's gems and jewellery
exports. About 80% of the gems and jewellery exports from India are cut and polished
diamonds. The share of gems and jewellery in India's total exports spurted from 2.9%
in 1970-71 to 18.2% in 1998-99.

The exports of diamonds were nominal at Rs. 2 crore in 1960-61, which increased to
Rs. 22 crore in 1966-67 and to the mind-boggling figure of over Rs. 20,000 crore in
1998-99. Helpful Government policies and the entrepreneurship of the country's
diamantaires helped diamond exports to emerge as the largest export commodity
group within a matter of four decades.

India today occupies the No. 1 position in importing, processing and exporting
diamonds. India accounts for over 70% of the world exports of cut and polished
diamonds in cartage. In other words, roughly 7 out of every 10 diamonds set in
jewellery world-wide are from India.

The figure is raised to about Rs. 25,790 crore (US$ 6.131 billion) in 1998-99. This
represented a growth of 573 times in gems and jewellery exports as compared to the
growth of 92 times in the country’s total exports from Rs. 1,535 crore (US$ 2.031
billion) in 1970-71 to Rs. 141,604 crore (US$ 33.641 billion) in 1998-99, gems and
jewellery exports increased further to Rs. 34,560 crore (US$ 7.622 billion) in the year
2000-01. In 2004-05 the gems and jewellery exports were still higher at Rs. 68,646
crore (US$ 15.320 billion). In the latest figures for 2006-07 was US$ 11. 45 millions.

CURRENT REPORTS ON DIAMOND EXPORTS:-

After making its mark in the world diamond processing industry, India is well on its
way to becoming the leading global gems and jewellery hub. India’s gems and
jewellery industry is now on a high growth trajectory.

Exports from the industry fetched US$ 17.1 billion in 2006-07 against US$ 16.64
billion in 2005-06, showing a growth of 26 per cent. While diamonds accounted for
64 per cent of the total exports, colored gem stones and others accounted for 1.44 per
cent and 1.04 per cent respectively last year.

Cut and polished diamond segment exports were US$ 10.90 billion, Colored
gemstone exports yielded US$ 246.48 million last fiscal, against US$ 232.35 million
in 2005-06. The growth momentum has continued into the current fiscal. The gems
and jewellery export industry grew by a robust 27 per cent export during the first half
of the current fiscal at US$ 9.4 billion, as compared to US$ 7.4 billion in the
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corresponding period of 2006, according to the Gems and Jewellery Export Promotion
Council (GJEPC).

The growth in diamond exports was 28 per cent, in jewellery it was 21 per cent and in
colored gemstones, it was 22 per cent. The major destinations for exports have been
the US, UAE, Hong Kong, Belgium and Israel. In fact, the US, UAE and Hong Kong
together accounted for over 70 per cent of the total exports in the previous fiscal year.

'Diamond jewellery consumption is likely to jump to nearly 80 percent in 2010 and

over 95 per cent between 2010 and 2015,' according to Assoc ham president
Venugopal N. Dhoot.

In terms of exports diamonds made a significant contribution in the overall gems and
jewellery exports:

• Diamonds accounted for 64 per cent of the total exports,

• Colored gem stones and others accounted for 1.44 per cent and 1.04 per cent
respectively.

Nevertheless, the government has extended other benefits and facilities to the industry
whereby re-import of Diamonds & Jewellery (either in complete or partial lot)
exported on consignment basis have been allowed.

Moreover to reduce the transaction cost for the diamond sector, testing facility at
International Diamond Laboratory (IDL), Dubai, has been incorporated in the list of
laboratory/certifying agencies in addition to Duty free import entitlement of tools,
machinery & equipment has been allowed. For metals other than gold, platinum, it
will be 2 per cent.

• 11 out of 12 stones (diamonds) set in jewellery are cut and polished in India
(Processing is done on rough diamonds in full range of sizes and qualities,
including stones larger than 10 carats).
• India's share in this sector is about 80 per cent of the world market.
• India also accounts for 90 per cent of the volume of diamonds processed in the
world.
• India employs over 90 per cent of the global diamond industry workforce.

60
MAJOR DIAMOND EXPORTER FROM INDIA:-

61
62
63
ANALAYSIS

The domestic diamond industry may soon get rough diamonds directly from African
countries. Many African countries have sounded out the government on selling roughs
directly to India.

India will join Belgium, Israel and Dubai as a centre for diamond trading, once direct
access to rough diamonds is established. The country has already emerged as a big
player in the finished product category - cutting and polishing imported roughs and
re-exporting it as solitaires and jewellaries.

As part of a deal between the Indian government and African countries, a few Indian
companies may set up manufacturing facilities in countries like South Africa, Congo
and Botswana. While Indian companies will provide employments to African
nationals, rough diamonds from the mines in those countries will be routed directly to
Indian ports as part of a proposed agreement.

Local diamond traders are bound to benefit from the move. The diamonds will
become cheaper after value addition in India. This will dilute the role of
intermediaries like Diamond Trading Corporation (DTC), if not eliminate their
presence in the market. DTC controls 80% of global trade in rough diamonds.

The Indian government is also playing the role of a catalyst. Currently, the diamond
industry is disintegrated and absence of a large conglomerate is standing in the way of
India gaining a hold over the global market.

The role of intermediaries will reduce, once the proposed structure comes through.
Not only Indian companies, but a few foreign companies are also expected to pick up
equity stakes. The company will purchase rough diamonds from various small mines
across the globe and sell them to Indian manufacturers.

Small mines used to sell to the manufacturers through a host of intermediaries. The
mines will gain, as the marketing process will be simplified. The company will also
emerge as a central selling point for diamonds, thus helping the manufacturers.

The government of India is encouraging GJEPC to get the process going in the current
fiscal year. Significantly, a large capital base of the company will enable it to invest in
foreign mines.

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CONCLUSION

The future of the industry is quite promising. More and more buyers across the world
are turning to India as their preferred source for quality jewellery. The Gems and
Jewellery Export Promotion Council (GJEPC) is looking at exploring new markets,
such as Latin American countries.

The industry also plans to make India a trading centre for cut and polished diamonds,
and is closely working with the Government of India in this regard. The long term
prospects looks good with jewellery exports expected to touch US $16 billion in 2010
according to industry estimates.

India was a late entrant to the global jewelry market and its industry took off after
establishment of the export processing zones in 1990, especially the special economic
zone in Mumbai that accounts for 40 % of India's exports.

It has taken the country a few years to incorporate international designs, styles and
finishes. The outlook for the Indian diamond industry is bright, but how much of this
amazing performance will actually translate into improved bottom lines will lie in the
capability of individual businesses to harness the potential of new markets and
products.

With intense competition in market, the stock performance will depend on how
efficiently, in terms of both cost and marketing, companies can cut and polish
diamonds and also venture into the lucrative but difficult diamond jewellery industry.

LIMITATIONS

SIGNS OF A U.S. SLOWDOWN

The U.S. accounts for 32% of India's $17 billion in exports of cut and polished
diamonds and jewelry. However, the U.S. market is showing signs of a pullback,
given the slower economic growth this year. India's total diamond sales declined to
$11 billion in the 2006 fiscal year from $12 billion in the 2005 fiscal year. "The
economic slowdown in the U.S. is affecting Indian exports.

Another threat is that India's rapid economic advancement may mean the end of
preferential treatment of its diamond exports. Five years ago, India was still
considered a developing country and thus the U.S. waived a 6.5% import duty levied
on diamond jewelry imports. The duty benefits give us enormous leverage in a market
where the trend is moving away from diamond jewelry.

SMALLER PIECE OF THE PIE

If there is no waiver, a major beneficiary will be China, which is in a position to

benefit from India's export duty burden. China has been processing larger diamonds
for jewelry making and importing rough diamonds worth about $1 billion a year.

Also, diamond mining countries in Africa are making efforts to process diamonds
locally. This will affect India's share in the global sweepstakes.

65
South Africa is weighing a move to slap duties on the export of rough diamonds that
would push up the material costs for Indian players.

The Indian diamond industry is facing 2008 under attack at both ends of the pipeline.
On the supply side, the announcement of the new De Beers Diamond Trading
Company (DTC) client list has the Gem & Jewellery Export Promotion Council
(GJEPC) estimating that some 25 per cent of its direct rough supply will be cut off.

The industry is also resigned to the fact that a substantial amount of consolidation will
take place this year, with many smaller operators either going out of business or being
swallowed up by larger ones with much stronger positions in the market. The
consolidation will also inevitably lead to lay-offs and a reduction in the size of the
industry workforce.

On the demand side, there is no longer any doubt or difference of opinion among the
economic pundits – the United States is definitely heading into a recession. With over
55 per cent of Indian gem and jewellery exports going to the US, the consequences of
a recession in that country will be extremely harsh. Adding to this is the fact that the
Indian gem and jewellery exports to the US are mainly low end, and this segment is
the most sensitive to economic hardship.

Further trouble comes with a rupee that has been almost continuously strengthening
against the US dollar. Apart from the obvious erosion of profitability this leads to,
given that raw material acquisition and final product sales are computed in dollars
while the value being added is in rupees, the Indian diamond industry is particularly
hard hit by the fact that sales are routinely made with extremely long-term credit.

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BIBIOLOGRAPHY

 EXPORT, DO IT YOURSELF
14TH EDITION
BY- M.I. MAHAJAN

 EXPORT MANAGEMENT
BY- M.I. MAHAJAN

 HOW TO EXPORT
BY-NABHI PUBLICATION

 EXPORT MADE EASY

BY-P.VEERA REDDY AND P.MAHATHA

 WEBSITES:- www.gjepc.org
www.google.com
www.ask.com
www.indiainindustry.com
www.answers.com
www.wikipedia.com
www.ibef.org

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