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Gujarat inks MoU with Russia’s diamond capital for sourcing rough diamonds; likely to revive state’s MSMEs

Sandeep Soni

Even as the diamond industry in Gujarat and especially Surat -- the hub for diamond polishing has been reeling under slowdown since around October last year due to sluggish global demand, the state is now looking to bolster the supply of rough diamonds to MSMEs in diamond polishing and improve employment. Gujarat’s chief minister Vijay Rupani, who left on Saturday for a three-day tour of Russia, has signed a memorandum of understanding with the Yakutia region in Russia’s far east, also known as Russia's diamond capital to “bolster the collaboration in the sourcing of rough diamonds,” Invest India, the national investment promotion and facilitation agency tweeted on Tuesday.

“90 per cent of the world’s diamond manufacturing is done in Gujarat for which raw material (rough diamonds) is sourced from various countries including Russia, Canada, South Africa etc. However, around 25 per cent alone of the raw material comes from Russian mines. This MoU will certainly help MSMEs involved in cutting and polishing and provide employment to small craftsmen along with helping in exports as well,” Shantibhai Dhanani, Vice President, Surat Diamond Association told Financial Express Online.

Financial Express had in May reported that while diamond cutting and polishing unit owners somehow managed to do business, global demand slowdown, which remained in 2018-19, led to few firms going bankrupt and close to 1 lakh workers without jobs, according to Ranmal Jilariya, President, Gujarat Diamond Workers’ Union. There are reportedly more than 20,000 diamond units with around 20 lakh workers. 

Importantly, following the recent scams by diamond barons including Nirav Modi and Mehul, lending institutions including banks have become more cautious in financing the units and business. “Banks are a bit more cautious in their due diligence in lending to businesses following such scams,” said Dhanani. This has also impacted the growth as rough diamond units are finding it tough to finance their purchases.

The 5 per cent GST on job work is also adding to the problem as it increases the cost of goods sold in the international market and renders them slightly less competitive. The registered job worker charges 5 per cent GST on the work done from the business owner. “We had earlier requested the government to either remove this or reduce it to 1 or 2 per cent. There is a slight slump in growth due to this as sales aren't good in the international market. However, we are hopeful of it getting removed or reduced,” said Dhanani.