India’s connection with diamonds stretches back several millennia. But some of the most dramatic changes in the Indian diamond industry took place over the last four decades or so. A large, amorphous industry with no icons and no image for anyone to picture, hauled itself out of obscurity and from a fragmented collection of cottage industry workers into the world’s largest diamond workforce that processes 11 out of 12 of the world’s diamonds. Not only that, the Indian diamond industry now makes and retails diamond jewellery to consumers all over the world. Documenting that transformation, driven by the industry’s ability to collectively organise itself reveals how the industry’s evolution has come full circle to be one of the world’s few conglomerates that can actually generate trends and drive sales. Turning 40 itself, Diamond World looks back on the four decades of change in the diamond industry it was privileged to chronicle. Vinod Kuriyan Reports.

The evolution of the Indian diamond industry over the past four decades truly mirrors the transformation of a caterpillar into a butterfly. Back in 1973, the Indian diamond industry was an unglamorous caterpillar munching on a huge volume of mainly small diamonds of such poor quality that were at best described as being only “near gems”. But the Indian diamond processing caterpillar’s remarkable digestion was able to turn these otherwise unwanted stones into a gigantic pile of nice, affordable gem diamonds that almost anyone could afford.

The Indian process caterpillar’s steady processing of these diamonds over the years transformed the world’s diamond consumption patterns. But the process also had a transforming effect on the Indian industry itself. Slowly, with increasing confidence and a growing expertise, the caterpillar’s appetite turned towards bigger and better diamonds. It munched itself up the tree to qualities that previously only the Israeli industry could process. Then, it went further up, taking into its processing maw what the Belgian industry and finally what any cutting centre in the world including New York processed.

The caterpillar then moved downstream into jewellery production and finally, a short while ago, began the process of building a global brand for the “Made In India” label. The Indian industry is no longer an unglamorous caterpillar, it is a butterfly that is now fluttering on the world stage, now being recognised for itself.

With an export figure of $1.74 billion (around 15 percent of all the country’s merchandised exports) in fiscal 2012-13, the Indian diamond industry has spearheaded the growth of the entire gems and jewellery sector. It has come an astonishingly long way from the $17 million in 1966. That was the year that a sprawling, amorphous, cottage-style gem and jewellery processing industry had just got itself collectively organised through the formation of the Gem & Jewellery Export Promotion Council (GJEPC).

That collective organisation is a landmark in the growth of the Indian diamond industry. From the formation of the GJEPC onwards, diamond cutting in India began to inexorably move towards a more clearly defined structure and better business practices. Today’s large, highly automated factories are an outcome of the change in thought process that began with the formation of the GJEPC — not only a collective industry voice but a systematic partnership between the industry and the government.

The Indian diamond industry’s full history is well known, stretching all the way back to the famed Golconda mines and the first understanding of how to cut a diamond. But the growth and continuing evolution of the current behemoth that leads the country in its overseas trade, is a result of organisation rather than just the result of an historic start. In that sense, the story of the modern Indian diamond industry goes back more than a century ago to a fateful meeting in 1909 of the elders of the Jain community in the village of Palanpur in Gujarat. The elders decided that the best way for the community to haul itself out of poverty and climb to a more secure future was for its young men to plunge into the process pipeline of the diamond industry — at that time almost exclusively servicing India’s many royal houses as well as its British colonial masters. The community elders were not exactly stepping into an unknown void. Two entrepreneurs from Palanpur, Amulakh Khubchand Parikh and Surajmal Lallubhai Mehta, had already blazed the way in the diamond industry, starting out in the closing years of the 19th century and having established successful operations based in Mumbai at the time of the Palanpur community meeting. Also, dealing was seen by the community as an honourable profession. Thus at the impetus of the community elders, more Palanpuri youngsters made the journey to Mumbai, each reaching out and helping a group of young, impoverished men from their community, giving them a place to live while they learned to either cut and polish, sort or sell diamonds. The community and family ties that those pioneers had in great measure helped craft the global success story of the Indian diamond industry.

Those ties played an important role in keeping the Indian diamond industry alive in the years after India achieved independence. The country’s left-leaning socialist government under Jawaharlal Nehru, banned all imports of diamonds — rough or polished — as well as banning the import of processing equipment. While the Indian diamond workforce dwindled to just a handful who survived by re-cutting old diamonds from the maharajahs’ collections, Indian diamond dealers did well in centres such as Antwerp.

By 1955, when the Indian rupee had stabilised enough to warrant the easing of some restrictions, collective representation by the diamond industry helped negotiate a fixed import licence system. The Indian industry could import a fixed amount of diamonds every year. Naturally, as business grew, this system got in the way. “Creative” ways were found around this hurdle, and the Indian diamond industry increased the pace of its growth.

The First Indian Sight By the 1960s the collectively organised industry’s abilities played a key role in helping De Beers, who at that time had a lock hold on the world’s rough diamond supply, in making up its mind to appoint its first Indian Sightholder in 1962. The Indian Diamond Export Corporation, which is recorded as the first Indian Sightholder, was in fact a consortium of a trio of dealers — Mohanlal Raichand, H.B. Shah and Hashamali Jhaveri. They were the thin edge of an Indian entrepreneurial wedge that would open up the global diamond industry.

Others from the community followed. Kirtilal Manilal Mehta, who as a boy of 12 began dealing in rubies in what was then Burma, moved later to Mumbai and into the diamond industry, building up what would become Gembel, a global diamond powerhouse.

Mahendra Parikh set up what has grown to be today’s giant Mahendra Brothers in 1960. Kirtilal Kalidas, the eponymous firm set up by Kirtilal Kalidas Mehta, who had begun selling diamonds in Coimbatore in 1929, integrated backwards into diamond manufacturing when Pankaj Mehta set up Dimexon in 1964.

The build-up continued over the next decade as well. In 1971, Bharat Shah set up B. Vijaykumar with his brother Vijay. The firm grew to be India’s largest diamond exporter at one time. Jayantibhai Mehta of Thakorlal Hiralal migrated the Kolkata-based jewellery firm to Mumbai and into the forefront of diamonds. In 1974, P.D. Kothari set up the eponymous firm that has grown into today’s Jewelex. The Kothari family and the Shah families set up a joint venture, Asian Star. The joint venture ended amicably and Asian Star is today a Sightholder in its own right, with its chairman Vipul Shah currently also the chairman of the GJEPC. In 1974, Mahendra Shah and Champak Mehta set up C. Mahendra Exports.

The 1960s, however, provided the springboard for the growth of the Indian diamond industry. Mafatlal Mehta, whose father was one of the elders at the 1909 meeting in Palanpur, also received a De Beers Sight. As his son Mahendra “Madhu” Mehta, who was one of the original group to receive a De Beers Sight reminisced in an interview in the 1980s, his first allocation was to the tune of $5,000. Still, that beginning was significant. De Beers realised that Indian cutters could turn otherwise worthless rough into saleable gems. The term “near gem” was coined and India’s total diamond exports in 1963 were estimated at just under $5 million and by the time of the formation of the GJEPC in 1966, that figure had more than tripled.

By the next year, the workforce processing diamonds was estimated to be in the region of 25,000 by a De Beers fact-finding team. Banks suddenly realised that the fledgling industry was a good financial bet and with institutional finance also now on board, the Indian diamond industry’s growth was assured.

The Mass Market Revolution

In the 1960s, a resurgent United States of America, with a whole generation of “baby bloomers” finding increasing prosperity after the disastrous years of the Great Depression followed by World War II, provided the backbone for the growth of the Indian diamond industry. The birth of the suburban shopping mall was taken advantage of by the pioneers of credit jewellery sales — the Zale corporation. Allowing consumers to pay for their jewellery in manageable installments and locating their stores in the new retail format of the shopping malls that mushroomed all over the US catapulted Zale into quickly becoming the country’s largest jewellery retailer.

The Zale partnership with the Bhansali family, the first direct tieup between a US firm and an Indian producer, helped catapult Indian diamond exports. The Bhansalis took a big chance — they sent Zale’s chief buyer Allen Ginsburg parcels of small diamonds without any prior contact and without an actual order being placed. The bet paid off. Zales, with its expanding network of retail outlets and subsequent expanding need for small diamonds, quickly forged an alliance with the Bhansalis.

That partnership also brought to the fore another, equally important facet of the Indian diamond industry — its enthusiastic participation in philanthropy and charity. With the Bhansalis putting in some $700,000 and the Zale Corporation another $300,000, the million-dollar 200-bed Mahatma Gandhi-Abraham Lincoln Hospital opened in 1981 in Deefa, some 20 km from Palanpur. The hospital’s goal was to provide free- and very low-cost medical care to the people of the region. It still does that today. Dozens of other philanthropic institutions and initiatives by the Indian diamond industry are also active today.

But the diamond industry received a major shock in 1966 when the government once again stopped all imports and devalued the rupee by 57 percent against major currencies such as the US dollar and the pound sterling. Suddenly, rough couldn’t be had, and what little was available was prohibitively expensive due to the weak rupee.

Again, it was the Indian industry’s collective organisation ability that saved the day. Led by S.G. Jhaveri of London Star, a group of Indian diamond dealers put together what would become the replenishment (REP) licence system. The government approved and the REP system became the engine that drove growth in the Indian industry over the next two and a half decades. Also feeding the growth of the Indian diamond processing prowess was the overseas diaspora of Indian diamond dealers, particularly the rough resellers who had made Antwerp their home.

Very early on, the Indian diamond industry realised that the key to the growth of the cutting industry was a steady supply of raw material. Pioneers such as Mafatlal Mehta, Kirtilal Manilal Mehta, Vijay Shah, Dilip Mehta, Kaushik Mehta and Mahendra Parikh all migrated to Antwerp to ensure that they would be able to keep up a steady supply of rough for their own family businesses as well as the growing number of Indian cutting shops. So well did they succeed at this task that they were all honoured by the Belgian diamond industry and even showered recognition by the Belgian government.

The ability to cut even the most impossible rough gave the Indian industry a clear edge over other cutting centres. The ability meant that almost all of Australia’s Argyle mine production was cut and polished in India. When the mine began production in December 1985, some 95 per cent of its output was considered non-gem or industrial quality. Not only that, the geological forces that had formed the mine also triggered conditions that meant that the crystal structure of the diamonds in the deposit was skewed, making the diamonds almost impossible to cut and polish while also giving them a brown body colour. Nobody wanted these diamonds.

Special polishing wheels with diamond dust epoxied to their surfaces had to be developed to cut and polish them. Even then, they took forever to process. The Indian cutting industry, with its low-cost yet highly skilled labour, bought all of Argyle’s brown rough and turned them into gems. So skillfully did they manage this that for many years even Argyle was unable to determine what sort of margins were to be made in cutting and polishing its rough.

Nobody wanted these diamonds. Special polishing wheels with diamond dust epoxied to their surfaces had to be developed to cut and polish them. Even then, they took forever to process. The Indian cutting industry, with its low-cost yet highly skilled labour, bought all of Argyle’s brown rough and turned them into gems. So skillfully did they manage this that for many years even Argyle was unable to determine what sort of margins were to be made in cutting and polishing its rough.

Argyle, also initiated its own efforts to promote its off-colour diamonds, coming up with the “champagne” and “cognac” labels to describe them and promoting the idea of “casual” diamonds. All in all, the Argyle rough served as the backbone of the explosive expansion of the Indian diamond cutting and polishing industry through the 1980s and the 1990s.

Bubbles That Burst

But it wasn’t all smooth sailing. The 1970s brought easy profits and great wealth at a rapid pace to the Indian diamond industry. The US delinked the dollar from its gold reserve while the formation of the Organisation of Petroleum Exporting Countries (OPEC) suddenly imparted a shock to fuel prices. Meanwhile, the consumer boom in the US had pushed polished diamond prices up beyond inflation levels. With a stock market that was unable to keep pace with this rapid increase in value, it was but natural that consumers began to look at diamonds as an investment category.

The early 1970s saw the price of large, 2-carat-plus diamonds increasing by stunning leaps of between 20 and 30 per cent per annum, while even the quartercaraters showed price increases of between 5 and 8 per cent. The world was seeing its first “investment diamond” boom. Rough diamond resellers in Antwerp made killings of up to 50 per cent premiums without even opening their Sight boxes.

The very low end, the major categories produced by the Indian industry, however, remained stable in terms of prices and the Indians quietly started building up business with a new format in jewellery selling — discount retail. So large a momentum had the Indian industry developed that De Beers decided to extend its Diamdel system, that sold rough diamonds to non-Sightholding, smaller operators in the open market, to the Indian processing industry in Mumbai. Partnering with the Indian government, De Beers launched the Hindustan Diamond Company (HDC) in 1979. India was now the acknowledged leader in small and low-end diamond processing.

The “investment boom” began feeding on itself as dealers in Israel too decided not to miss out on the good times and bid even more for rough. A worried De Beers imposed a surcharge of 40 per cent on its rough prices — even for Indian goods — at its March 1978 Sight in an attempt to cool things down. It also allowed Sightholders to leave the goods on the table if they so wished. But overall, the move backfired. Based on the logic that ‘De Beers never ever lowered prices’, and that the 40 per cent surcharge now reflected the future baseline price, other dealers paid even more for rough. De Beers tried again in May that year, imposing an additional 25 per cent surcharge on the rough. All the Indians left their goods on the table this time and De Beers, for good measure, cut off supplies to Antwerp-based Indian Sightholders as well. But the Indians were back buying again at the subsequent Sight. Premiums continued to soar.

Eventually, it was the sudden fading in US consumer demand over that Christmas season that burst the price bubble. Suddenly, some of the biggest names in the business were going bankrupt as they were saddled with huge debt, bloated inventories that no one wanted to buy and a US consumer who suddenly had no appetite for large, expensive diamonds.

The Indian industry too took a big hit as demand faded. Large numbers of its workforce of hundreds of thousands was laid off and those that were retained had to absorb big wage cuts. But ultimately, the Indians came out of this stronger than before. The US consumer still wanted diamonds, but now preferred the low-end affordable kind that they manufactured.

The bankruptcies in other diamond processing centres allowed the Indian industry to move upwards in the size and quality of diamonds it manufactured as it had the financial strength to take in the slack left by the financial failures. More organised manufacturing and the large-scale implementation of semi-automatic technology also meant that Indian manufacturing quality and yields had improved significantly.

Distrust And Accusations
But the move into what was hitherto the exclusive domain of the Israeli diamond processing industry brought to a head the tensions that had been simmering all through the 1970s. At the 1982 World Diamond Congress in New York, the Indian industry applied for membership of the World Federation of Diamond Bourses. The application was put on hold until the next Congress two years later. When this did take place in 1984 in Antwerp, India’s application was rejected.

The Indians bitterly accused the Israelis of having blackballed their applications. The Israelis denied this, saying that the Bharat Diamond Bourse, which had made the application, did not have the requisite systems in place to fulfill membership norms. Whatever the truth of the matter, the 1980s were marked by heightened suspicion and distrust between India, Israel and Antwerp. The latter accused the Indians of flooding the market with low-cost goods through the use of sweatshop and child labour. The Indians denied all of this, pointing out that their diamond industry wages were far better than what was offered by other sectors.

The accusations did not end and finally, fed up with being on the defensive, V.K. Singh, an Indian Administrative Service (IAS) officer who had been appointed managing director of the HDC, initiated an industry wide drive to ensure that no child labour was employed. The GJEPC weighed in with the threat to rescind the membership of any manufacturer who was found to be employing child labour. The auditing and consulting firm of A.F. Ferguson was retained to independently verify that the industry was free of any child labour. The Indian industry was able to tell the world that an independent observer could vouch for the fact that it did not employ child labour.

The 1980s was also when the Indian industry again exercised its collective organisational power and began a series of decisive moves to increase its networking ability and simultaneously move downstream, setting up modern factories to manufacture jewellery set with the diamonds it had cut and polished.

The networking effort kicked off in 1985 without any real focus or direction with the Jewel Yatra, a small trade show that had mainly retailers as its exhibitors. This was so because the retailers were promised that a certain percentage of the show’s time would be dedicated to allowing Indian consumers to visit them. So small was the show when it first kicked off that it fitted in its entirety into the ballroom of the Taj Mahal hotel in Mumbai. The exhibitors were pleased because the show format allowed them to make retail sales to an invited customer base.

Jewel Yatra wasn’t going anywhere and the Indian industry knew it. A chicken and egg situation had developed. The overseas buyer community wasn’t interested in the show’s exhibitor profile and manufacturers weren’t interested in exhibiting, as the show didn’t attract the needed visitor profile. At first the GJEPC, which ran the show, tried to get the management of the successful JCK Las Vegas show to take over Jewel Yatra. The JCK management declined the offer.

Bold Move Pays Dividends
At an industry brains trust meeting to try and come up with some answers to the problem, Sanjay Kothari, who has been chairman of the GJEPC for several terms, backed the idea mooted by Dilip Shah of Dilip Chain Industries, that the show wouldn’t get anywhere unless the Indian industry made a clear decision to turn its back on the mixed format that allowed consumers into the show and decisively moved towards establishing a business to- business networking platform for the domestic industry to begin with. Kothari courageously endorsed the idea that only through the establishment of a solid domestic business-to-business platform could the Indian industry hope to subsequently build up an international networking platform.

Kothari convinced his colleagues. The courageous decision to change the format of the show was taken. Jewel Yatra was repositioned as a business-to-business show only and a concerted effort was made to get the Indian gem and jewellery pipeline to network internally. The show was positioned in August to be a convenient stop just before the established Hong Kong show and the next series of shows in Europe. There was a huge drop at first, but the gamble paid off. The show was then renamed the India International Jewellery Show (IIJS) and an international effort was launched. Today, the IIJS is among the world’s four largest gem and jewellery industry trade shows.

So big a success has the show become that the GJEPC now also hosts the IIJS Signature show in January. This smaller, more focused show is now a sort of barometer for the coming year as far as the Indian industry is concerned. The need to network and showcase the Indian industry’s abilities was necessitated by the fact that its move downstream into jewellery manufacture too was a success. Most of the initial forays in jewellery manufacture began in special export processing zones like Mumbai’s SEEPZ. But with increasing success and the transformation of the domestic Indian market into a major gem and jewellery consuming centre, organised jewellery manufacture spread into the domestic tariff area (DTA) as well.

The economic liberalisation that began in 1991 played a big role in the transformation of the Indian diamond industry. The concerted swing from a decidedly socialistleaning economy towards a free market system brought about dramatic changes in domestic consumer behaviour. Luxury consumption suddenly became an important part of the Indian economy. De Beers spotted an opportunity to develop a new market for diamonds and decided to focus a significant chunk of its global umbrella advertising campaign on India.

Even though it had a jewellery tradition that stretched back thousands of years, India confronted De Beers with a problem in that it did not really have any diamond tradition to speak of. There were a few niches where flat, uncut diamonds were used in the traditional polka jewellery, but there was nothing significant. Also, Indians traditionally did not imbue their jewellery with any emotional content — it was more a part of a woman’s personal wealth rather than a symbol of any emotional bonding or some overarching idea of something that could defy even time.

Meanwhile, the Indian diamond industry grew laterally. Many of those who had comprised the erstwhile workforce that cut and polished diamonds, now ventured into business for them. Many of these workforces were from Gujarat’s Kathiawar region. The Kathiawari entrepreneurial drive had begun. Many of today’s leading Indian firms have grown out of that entrepreneurial drive. Karp Imex, Shree Ramkrishna Export, Sheetal Manufacturing Corp., Hari Krishna Exports, Bhawani Gems, Godhani Gems, Laxmi Diamonds, Kiran Gems and Dharmanandan Diamonds to name some.

Initiating A Brand New Tradition
De Beers had to make a fresh start in India and it decided that the way to develop a diamond tradition would be to develop a series of diamond jewellery brands that imbued the product with some specific emotion. It entered the Indian market relatively cautiously with the Nakshatra brand. This was based on the age-old Indian tradition of the floral motif and tied in with Bollywood star allure as a series of leading actresses were hired as the ambassadors for the brand. Together with De Beers’famous umbrella campaign — “A Diamond is Forever” — translated into several Indian languages, Nakshatra was relatively modestly priced and gave diamond jewellery a safe entry into the Indian market.

It also built up consumer valuations of diamonds in India. De Beers followed this up with three other brands — Sangini, which built on the idea of a mature partnership between a man and a woman with the imagery of a life mate who has stayed through thick and thin; Asmi, which targeted the self-purchase market for successful professional Indian women and Arisia, which showcased the large, solitaire diamond in the traditional format as a vehicle that transmitted value through time.

Having launched a diamond tradition in India, De Beers then sold the brands to interested Sightholders who had moved significantly downstream and were able to carry on building on the diamond tradition. Gitanjali Gems eventually acquired all the brands and continues to operate them even today. 1979 1980-82 1982 1984 1985 1985-87 Speculative bubble bursts. Indian workforce halved but Indian industry emerges stronger than other centres.

Indian industry begins cutting better qualities and sizes that hitherto only Israel and Antwerp had processed. Intense rivalry generated. New York World Diamond Congress shelves Bharat Diamond Bourse’s (BDB) application for membership of the World Federation of Diamond Bourses. Antwerp World Diamond Congress rejects BDB’s membership application. Indians blame Israelis. They say BDB not ready with systems.55 Argyle mine in Australia is commissioned. HDC and GJEPC launch anti-child labour drive. A.F. Feguson audits efforts and declares industry free of child labour. The move by the as big a Sightholding firm as Gitanjali Gems into not only branding its own jewellery but also retailing it, set the next phase of the growth of the Indian diamond processing industry. Against all traditional wisdom, the Indian jewellery brand has made a decisive place for itself both in the domestic as well as international markets.

Realising that it now needs to make the transformation to an industry that is fully integrated from diamond mine to consumer market, the GJEPC has now embarked on a drive to establish the “Made In India” label as something that is synonymous with quality and design leadership. This need to establish the country’s design and quality credentials over its already firmly established manufacturing prowess is the driving force behind the India International Jewellery Week. Just as the Milan Fashion Week is designed to underscore the prominence of Italian design, so the IIJW is showcase for the Indian industry’s abilities to not only manufacture quality product, but to also drive consumer demand through design innovation and product development that is tailored to the dreams and aspirations of today’s global consumer.

Like the rest of the diamond industry worldwide, the Indian industry has now adapted and adjusted itself to the new political realities of Africa. Many of the big firms have moved to set up cutting and polishing factories in Botswana, Namibia and South Africa to help those African nations fulfill their social and political ambitions in having as much value added to the diamonds mined there, before they are shipped further down the process pipeline and eventually into global consuming markets. And in keeping with those same realities, the Indian industry, which reached out to De Beers and its Central Selling Organisation (CSO) in London almost half a century ago, has now adapted to the idea that it will be receiving its Sights from Gaborone in Botswana. Despite the fact that there is currently no direct flight to Gaborone and requires a stopover in Johannesburg to make the connection, this is the new reality of the global diamond industry and those are the rules that will have to be followed.

In keeping with this, the Indian industry has also told Rio Tinto that its almost ready new mine in Bandar in India in which India will have to develop a sales system that gives Indians the right of first refusal before the rough diamonds are shipped to world distribution and processing centres. It stands to reason that the minerals from India should beneficiate the Indian industry first.

The stolid, no-nonsense caterpillar that marched its way purposeful through the lowest end discards of the diamond mines, transforming them into product that added much value to the process pipeline and sparked global consumer demand, is now an attractive butterfly itself. The generative process has indeed come full circle.