The Hindu Business Line : US cos have big designs on Indian diamond jewellery

THE country's diamond processing sector may acquire a new sheen. Large US corporates running multi-billion dollar jewellery chains are increasingly eyeing India as a potential centre for outsourcing their production of diamond-studded jewellery.

Cheap labour and the traditional expertise in diamond processing among the artisans are the major factors that are prompting the US corporates to focus on India for jewellery production.

For its part, the gem and jewellery export industry, cottoning on to the increased US interest in this sector, is initiating measures to set up adequate infrastructure facilities to meet the diamond processing needs of the foreign companies and train artisans to learn the designs that the currently in demand in the West.

Although India occupies the top position in the world in small and low quality diamonds, it is yet to make a significant mark in the diamond-studded jewellery segment vis-à-vis the potential it has.

Take the cases of the $2.2-billion Sterling Zales and the US-based Walmart, which are in talks with the Mumbai-based Rs 528-crore Soundcraft Industries Ltd, the country' fourth largest exporter of processed diamonds, for setting up outsourcing facility here for production of diamond-studded jewellery.

"We are in the process of setting up a huge production facility here. We also intend to create a Rs 25-crore fund to enable SSIs in the diamond processing sector to set up small units as captive facilities for us. Once these infrastructure facilities are in place, we will have the final negotiations with the two US companies," Mr Raj C. Basantani, Chairman of Soundcraft, told Business Line.

Industry experts say that other US companies are also initiating talks with Indian companies in this sector. "It is vital for the local diamond processing industry to set up adequate infrastructure facilities to grab this potential market. China is also training people in diamond processing, but India has the advantage of being the largest producer of processed small to medium diamonds. At present, India accounts for over 55 per cent of the world production in value terms and 80 per cent in volumes," according to a industry analyst.

India, which currently exports $ 7.5 billion worth processed diamonds, is aiming at increasing its exports to $ 10 billion by 2007. After facing a brief period of sluggish trend, the export market for processed diamonds is now looking healthier in the wake of the appreciating rupee and the dissipation of the SARS scare.

"The recent SARS scare had affected our market in Hong Kong, which accounts for about 15 per cent of India's processed diamonds export market. Now that market has revived. Also, the rupee appreciation has brought down our cost of import, which accounts for 93 per cent of our cost of production. I see a healthy growth of 18 to 20 per cent for the industry this fiscal," says Mr Basantani.

Although the appreciation of the rupee against the dollar has thinned the export margins, this has been offset to a large extent by the reduction of import cost.

"The import cost has come down by about five per cent during the last few months. The industry has also been benefited by lowering of interest rates. Dollar borrowing now attracts 2.5 per cent to 3 per cent cost, while in rupee terms it is 8 per cent," an analyst pointed out.

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