Return
to Story Page
To print: Select File and then Print from your
browser's menu
Sanjiv Arole
MUMBAI, MAY 10: Pravin Shankar Pandya is a worried man. The chairman of the Gem and Jewellery Export Promotion Council (GJEPC) believes the Chinese are on a rampage. And that it is only a matter of time before Indian diamantaires feel the squeeze. Perhaps in five years. Others say a decade. Unless the government backs the industry.
The threat of India losing its status as the world's largest diamond processing centre and go the Maharashtra way, is very real. Lately, the state witnessed the software industry move towards the south. The bullion trade too is making itself scarce in this once premier centre. The film industry also is maneuvering its way to Hyderabad. The diamond industry already has lost a couple of lakh jobs to neighbouring states. All this is liable to show in Maharashtra's finances. Now the simile becomes clear and the Chinese threat to India assumes increasingly frightening proportions.
The Chinese invasion in the diamond sector is getting stronger. Some years ago China's record indiamonds was virtually zero. Right now, the Chinese import rough diamonds worth only $500 million. As against this, India imports rough diamonds worth over $3 billion. What is terrifying Indian diamantaires, however, is the scorching pace of growth the Chinese have exhibited over the last five years.
Seeing the writing on the wall, Indian entrepreneurs are joining hands with their Chinese counterparts to set up processing units. They take advantage of the technicality that the partnership is restricted to the cheap labour and does not cover the sales profits. Although officially there are just two Chinese sightholders, Indians from India and even from Antwerp have set up shop there. Indigems NV of Belgium closed down its unit in India to join hands with the Chinese, as has Eurostar of Belgium. There are many others like B Arunkumars, Jasanis and Unigems who also have a toehold there. More diamantaires, from India and elsewhere, are increasingly looking at China to circumvent the impact of the bureaucracy inIndia.
Ironically, the industry recorded its best ever performance in 1998-99. Diamond exports, at over $5 billion, captured over 50% of the world market in value terms. Exports registered a 12% increase. That the Indian diamond industry took advantage of the 11% fall in Israel's diamond exports showed that Indian diamantaires were adept in pouncing upon an opportunity. Hence, on the face of it, there is no real reason for alarm. But the industry is not confident about its future. Perhaps, these figures were an aberration in the face of a global recession. Observers point out that India's expertise in smaller goods helped it tide bad times. When demand picks up, it could be back to square one. And India with its vast network and 30-year experience may have to fight to maintain marketshare.
Catalysed largely by their inherent advantages, like that of extremely cheap labour. Go deeper from the coast of Shanghai and labour rates fall by the mile. The quality of worksmanship is equally impressive. While otherAsian countries also offer cheap labour, they cannot compete in terms of numbers. Equally helpful is a single window system that minimises bureaucratic hurdles, and FTZs (Free Trade Zones). Add to this their own mines, the Chinese penchant to bulldoze their way through negotiations and the nonchalance with which they render competitors unviable by undercutting and dumping in commodity markets. As against this, Indian red tape is legendary. The way things are, about a third of the jewellery units at SEEPZ in Mumbai are lying idle. This includes a factory which once boasted a 2,500-strong workforce. Reason enough why the Indians fear history repeating itself. Like it did in the steel and chemical industries.
Then there is De Beers to contend with. The conglomerate, which still moves the rough market through its CSO (Central Selling Organisation) ghts, may look upon China to reduce its own dependence on India as a processing centre. Why have the Millennium boxes gone to Hong Kong for processing? This in spiteof a Millennium competition being held in India to promote sales.
De Beers, however, has a different story to tell. ``China currently has around 10,000 diamond workers compared with 8-10 lakh in India. There are only two Chinese CSO sightholders, whereas our Indian clients make up a significant number of the total clients worldwide. The types of rough diamonds that the Chinese currently specialise in are more focused towards the range of material historically cut in Belgium, Israel and the Far East. As far as we know, China is not interested in polishing what we call Indian-type goods. India has become a specialist in handling what we term `makeables', `clivage' and `rejecting' type rough diamonds, whereas the Chinese have tended to concentrate on what we term `sawn' or `sawable' rough diamonds. Because India and China specialise in different areas from each other, there is no clash or competition between them.'' ``From our viewpoint, India will remain an extremely important centre... We have not beenencouraging the development of China as a cutting centre to the detriment of India.''
While the latest EXIM policy envisages FTZs, lowering of interest rates and a more friendly bureaucracy, it appears inadequate and reactive at best. What should have been done five years ago is being attempted now. What is even more worrisome is the possibility that the Chinese would use Indians only to learn the ropes in marketing before setting up their own network. It may be noted that the Chinese are also venturing into jewellery. And herein India, with just 1.5% to 2% of the global $70 billion industry, is even more vulnerable. Remember, the Chinese do not have to depend solely on imports of gold. China is one of the top gold mining countries with which annually produces about 150 tonnes of gold.
Coming back to De Beers, the CSO arrangement, with its ups and downs, has outlasted two World Wars, apartheid in South Africa, the Soviet Union and is going strong against even anti-trust laws in the USA (which prevents itfrom operating directly there). There is nothing that suggests it will crumble in the next millennium.
History shows that De Beers has been happiest while operating with a single authority in any country. Be it either the Soviet Union, or an India controlled by a single party and strong bureaucracy and no corporates to deal with. The going has got tough for it, with the changed environment of South Africa and with the Argyles and the BHPs at its heels. Due to this and with globalisation as the new buzzword, it may be tempted to promote operations in an authoritarian China. This could also ease pressure on its inventories. Remember, India rose as a processing centre in the early eighties, when the diamond industry faced a crisis. It was theorised then that De Beers did this to ward off a threat posed by the banking sector, combined with the Israelis and the Americans. Will De Beers now risk promoting another major centre and face the prospect of trying to control both? Indians diamantaires should hope forthe best and prepare for the worst!
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
------------------------------------------------------------
This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
------------------------------------------------------------