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The imposition of 50% tariffs by the United States on gems and jewelry is poised to deliver a significant blow to India's natural diamond polishing industry. CRISIL Ratings, in a recent note, projects a steep 28-30% decline in revenue, forecasting earnings of $12.50 billion this fiscal year compared to $16 billion in the previous fiscal year. This downturn follows a period of substantial degrowth over the past three years, characterized by a 40% reduction attributed to dwindling prices, decreased sales volumes of natural diamonds due to weakened demand in the U.S. and China, and escalating competition from lab-grown diamonds. The timing of this tariff hike could not be worse, exacerbating an already challenging environment for Indian diamond polishers. The industry, heavily reliant on exports, particularly to the U.S., now faces a double whammy of increased costs and diminished market access, threatening the livelihoods of countless workers and the viability of numerous businesses within the sector. The ramifications of this tariff policy extend beyond mere financial losses, impacting the intricate supply chains, trading relationships, and global dynamics that shape the diamond industry. The sector's ability to adapt, innovate, and forge new partnerships will be crucial in mitigating the adverse effects and charting a sustainable path forward amid this evolving landscape. The challenges facing the Indian diamond polishing industry underscore the interconnectedness of global trade and the vulnerability of businesses to policy shifts and geopolitical tensions. As the industry grapples with these headwinds, it must leverage its inherent strengths, including its skilled workforce, established infrastructure, and deep-rooted expertise, to navigate the uncertainties and capitalize on emerging opportunities. The road ahead will be arduous, but with strategic planning, proactive measures, and a commitment to resilience, the Indian diamond polishing industry can weather this storm and emerge stronger in the long run. The key will be diversifying markets, streamlining operations, and embracing technological advancements to enhance competitiveness and maintain its position as a global leader in diamond polishing.
The new 50% tariffs, which became effective this week, present a formidable challenge for Indian diamond polishers for several reasons. First, the industry operates on relatively thin margins, making it exceedingly difficult to absorb the incremental levy without impacting profitability. Second, the existing decline in demand further complicates matters, rendering it challenging to pass on the additional burden to consumers in the form of higher prices. This confluence of factors puts immense pressure on diamond polishers, potentially leading to reduced operating leverage and eroded operating margins, estimated by CRISIL to be in the range of 50-100 basis points. Consequently, the credit profiles of these businesses are expected to come under strain, raising concerns about their ability to meet financial obligations and sustain operations. The analysis conducted by CRISIL, encompassing 43 diamond polishers representing approximately a quarter of the industry's revenues, underscores the severity of the situation. The Indian polished diamond industry is heavily export-oriented, deriving 80% of its revenue from international sales, with the U.S. being a crucial market accounting for 35% of its exports. The impact of the tariffs is already evident, with sales declining after a 10% tariff was initially imposed in April 2025. This initial tariff led to an 1100 basis point reduction in the U.S.'s share of India's polished natural diamond exports in the first four months of the fiscal year, dropping to 24%. The increased tariffs will only accelerate this decline, further jeopardizing the industry's financial stability and global competitiveness. The industry's ability to adapt to this new reality will depend on its capacity to implement cost-cutting measures, explore alternative markets, and develop innovative strategies to mitigate the impact of the tariffs.
Despite the looming challenges, Indian diamond polishers have demonstrated a proactive approach by ramping up production in July and August in anticipation of increased festival demand in the U.S. This strategic move resulted in an 18% surge in exports year-on-year in July, showcasing the industry's responsiveness to market dynamics. However, competition from lab-grown diamonds remains a significant threat, having already captured approximately 60% of the market share by volume in key markets such as the U.S. The rising popularity of lab-grown diamonds further erodes the demand for natural diamonds, adding to the woes of the Indian polishing industry. The subdued demand in China, another significant market for Indian diamonds, further compounds the challenges. Rahul Guha, Senior Director at CRISIL Ratings, highlights the severity of the situation, noting that revenues for the domestic industry, which polishes 95% of all diamonds produced globally, are projected to fall to their lowest levels since 2007. While consumption in India has been steadily increasing over the years, the incremental demand is insufficient to fully offset the losses incurred in the U.S. and China. Moreover, while the UAE has emerged as a dominant hub for India's exports, with its share doubling to approximately 20% year-on-year, the risks of a substantial downturn in revenues remain high. The industry's ability to navigate these complex market dynamics, including the impact of tariffs and geopolitical uncertainties, will be critical to its future success.
To mitigate the adverse effects of the tariffs and dwindling demand, CRISIL suggests that diamond polishers take several strategic steps. These include increasing domestic sales, exploring alternative geographies for exports, and establishing polishing facilities in trading hubs to circumvent tariffs. However, rerouting exports via low-tariff nations is deemed an unviable option. Even if retailers explore alternative sourcing options in lower-tariff countries such as the UAE or Belgium, a substantial portion of the diamonds would still be polished in India, subjecting them to the higher tariff. Given the declining demand, U.S. retailers are unlikely to absorb the tariff cost, which will further squeeze the operating margins of diamond polishers. CRISIL projects that operating margins will decline to 3.5-4.0% after falling 100 basis points in the past three fiscals from a peak of 5.5% in fiscal 2023. In response to these challenges, diamond polishers are expected to maintain lean inventories to control debt. Miners have also taken steps to limit the fall in prices by cutting production in line with subdued demand. Timely collection of payments from customers abroad will be closely monitored amid the slowing demand. Overall, debt levels of diamond polishers are expected to decrease over the medium term, reflecting a cautious approach to financial management. Himank Sharma, Director at CRISIL Ratings, emphasizes that while limited reliance on external debt has helped diamond polishers maintain a stable capital structure, declining scale of operations and pressure on profitability will likely test their credit risk profiles. Specifically, financial leverage is expected to remain relatively stable at 0.7-0.8 times, but the interest coverage could decline to 2 times from 2.3-2.5 times last fiscal.
Looking ahead, the demand for natural diamonds in key markets will require close monitoring, given the evolving tariff landscape and persistent geopolitical uncertainties. The industry's ability to adapt to these changes, implement strategic initiatives, and maintain financial discipline will be crucial in determining its long-term sustainability. While the challenges are significant, the Indian diamond polishing industry possesses the resilience, expertise, and adaptability to weather the storm and emerge stronger in the future. The key will be to embrace innovation, diversify markets, and foster strong relationships with stakeholders across the value chain. The Indian diamond polishing industry faces a multifaceted challenge, stemming from increased tariffs, declining demand, and heightened competition. The impact on revenue, profitability, and credit profiles is expected to be substantial. However, by adopting a proactive and strategic approach, the industry can mitigate the adverse effects and position itself for future success. The industry's ability to adapt to the changing landscape will be critical to its survival and long-term prosperity. The diamond industry has always been subject to cyclical fluctuations, and the current downturn is no exception. The industry's ability to navigate these challenges will depend on its resilience, adaptability, and commitment to innovation. The Indian diamond polishing industry has a long and proud history, and it is confident that it can overcome the current challenges and continue to be a global leader in the industry.
The CRISIL Ratings analysis provides a comprehensive overview of the challenges and opportunities facing the Indian diamond polishing industry. The report highlights the importance of diversification, cost control, and financial discipline in navigating the current environment. The report also emphasizes the need for collaboration between industry stakeholders, including miners, polishers, and retailers, to ensure the long-term sustainability of the industry. The Indian government can also play a role in supporting the industry by providing incentives for innovation, promoting exports, and reducing regulatory burdens. The Indian diamond polishing industry is a vital contributor to the Indian economy, and its success is essential for the livelihoods of millions of people. The government and industry must work together to ensure that the industry can overcome the current challenges and continue to thrive in the future. The diamond industry is a complex and dynamic sector, and the Indian diamond polishing industry is a key player in the global market. The industry's ability to adapt to changing market conditions will be critical to its long-term success. The Indian diamond polishing industry has a strong foundation, and it is well-positioned to overcome the current challenges and continue to be a global leader in the industry. The diamond industry is a global business, and the Indian diamond polishing industry is a key part of that global network. The industry's success depends on its ability to adapt to changing market conditions and to compete effectively in the global marketplace.
Source: U.S. tariff hike to cut Indian diamond polishers’ revenue by 28-30% this fiscal: CRISIL