Gems, Jewellery and the Diamond Trade

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For most of recorded history, if you owned a diamond, it came from India. The alluvial gravels along the Krishna, Penna and Godavari rivers in the Deccan, worked from mines around Golconda and Kollur, were effectively the world's only commercial source of diamonds until deposits were found in Brazil in the 1720s and, decisively, in South Africa in the 1860s. India no longer mines diamonds in meaningful quantity. It does something more lucrative: it cuts and polishes the great majority of the world's diamonds by piece, in a single city in Gujarat, and it remains one of the two largest consumers of gold on the planet. The Indian gem and jewellery trade is therefore two businesses stacked on top of each other, an export processing industry and an enormous domestic savings habit.

The historical trade is well documented because European buyers wrote about it. The French gem merchant Jean Baptiste Tavernier made six journeys to India in the seventeenth century and left a detailed account of the Golconda mining districts, the labour employed and the trading conventions, along with descriptions of the stones he bought. One of them, a large blue diamond he sold to Louis XIV, was recut after being stolen during the French Revolution and is generally identified with the stone now known as the Hope Diamond. The Koh i Noor, which passed between Kakatiya, Mughal, Persian, Afghan and Sikh hands before being surrendered to the British crown under the 1849 treaty annexing Punjab, came from the same region. Requests for its return are made periodically by India and by other claimants, and Britain has consistently declined.

How Surat came to cut the world's diamonds

The modern industry has almost nothing to do with that history. It began in the mid twentieth century when traders from Palanpur in northern Gujarat, many from Jain families, moved into the diamond business in Bombay and then in Antwerp, and when cutting workshops were set up in Surat employing labour drawn from the drought prone Saurashtra districts. The initial niche was unattractive to established centres: very small and lower quality rough stones that were uneconomic to cut with expensive European labour. Indian workshops made them viable, and once the skills, the finance and the family networks were in place, the industry moved steadily up into larger and better stones.

The logistics are counterintuitive. Rough diamonds are mined in Botswana, Russia, Canada, Angola and elsewhere, sold through trading hubs in Antwerp and Dubai, flown to India, cut and polished in Surat, and exported again, mostly to the United States, China and the Gulf. Very little is consumed where it is processed. The trade's financial centre is Mumbai, where the Bharat Diamond Bourse opened in the Bandra Kurla Complex in 2010, consolidating hundreds of offices that had previously operated from a congested street in the old business district. Surat opened its own vast bourse complex at Khajod at the end of 2023, promoted as the largest office building in the world by floor area, intended to let Surat trade as well as cut. Export promotion is coordinated through the Gem and Jewellery Export Promotion Council, and a special notified zone was created in Mumbai from 2015 to allow foreign mining companies to display rough parcels to Indian buyers without triggering the full tax consequences of an import.

Three pressures have hit this business at once since the early 2020s. The first is lab grown diamonds. Chemically identical stones produced by chemical vapour deposition or high pressure high temperature methods have become cheap and abundant, and Surat pivoted rapidly into growing and cutting them. Demand rose sharply in the United States, but prices for lab grown stones then fell steeply as capacity expanded, compressing margins. The second is a genuine slump in natural diamond demand, driven partly by weak Chinese consumption and partly by uncertainty over whether younger buyers in Western markets attach the same meaning to a natural stone. The third is sanctions. Measures adopted by the Group of Seven countries from 2024 restricting Russian origin diamonds, together with traceability requirements, complicate life for cutters who historically bought a large volume of Russian rough and whose entire industrial model depends on mixing parcels of stones from many sources. Employment in Surat has been visibly affected, with reduced hours and closures reported across the smaller units.

Gold, households and regulation

The domestic side is different in kind. Indian households hold an enormous quantity of gold, most of it as jewellery, accumulated over generations and concentrated in the hands of women, for whom it has historically been the one asset owned outright and independent of husbands and in laws. Purchases cluster around weddings and around auspicious days, notably Akshaya Tritiya and Dhanteras. Because almost all of this gold is imported, jewellery demand is a direct and significant contributor to India's current account deficit, which is why import duty on gold is a recurring lever of macroeconomic policy: it has been raised in periods of external pressure and cut when smuggling became the larger problem, as when the duty was reduced substantially in the 2024 budget.

Successive governments have tried to bring this stock into the financial system, with limited success. A gold monetisation scheme launched in 2015 invited households to deposit jewellery with banks to earn interest, requiring it to be melted and assayed; very little was forthcoming, since the objects are not fungible bullion to their owners. Sovereign gold bonds, offering a return linked to the gold price without physical metal, proved more popular with investors but do not touch existing family holdings.

Consumer protection has improved. Hallmarking by the Bureau of Indian Standards, which certifies the purity of gold articles, was made mandatory in phases from 2021 and extended progressively across districts, replacing a market in which under caratage was widespread and difficult for buyers to detect. The industry also carries reputational scars from financial scandal, most prominently the fraud disclosed at a Punjab National Bank branch in Mumbai in 2018, in which letters of undertaking were issued to diamond and jewellery firms without proper collateral or recording, resulting in losses running into billions of dollars and extradition proceedings that continue. That case tightened bank scrutiny of trade credit to the sector, which in turn made working capital harder to obtain for the many small, thinly documented firms on which the industry actually runs.

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