The domestic lab-grown diamond (LGD) industry has exuded confidence that the removal of a five percent import duty on the import of lab-grown diamond seed, a thin slice of a diamond crystal, and a five-year research grant to IIT in the Union Budget 2023-24 will lead to an exponential growth of the industry.
"The foregone duty on LGD seeds could have a multiplier effect. Its benefits could extend beyond the LGD industry to related industries and the wider economy. It may create job opportunities, stimulate demand for related products and services, and contribute to economic development,’’ said Vipul Shah, chairman of Gem and Jewellery Export Promotion Council (GJEPC).
Made in laboratories and factories, LGDs share the same optical and chemical properties as mined natural diamonds. They are also environment friendly, cheaper and can be customised.
India depends on the import of LGD seeds now. "At present, we are importing high-value seeds from Japan and Germany. The cut in import duty will help in reducing the cost," said Smit Patel, partner of Greenlab Diamonds. With the grant allotted to IIT for research, India hopes to develop the technology including for making LGD seeds.
Rising exports
LGD exports from India have grown rapidly in the last few years irrespective of the pandemic and geopolitical events.
From April-December 2022, LGD exports grew over 44 percent to $1,330.18 million year on year. At the same time, the export of natural cut and polished diamonds declined by around 8 percent to $16,625.45 million due to the war in Europe and economic problems.
While the share of LGD in the total diamonds exports from the country is still under 10 percent, export growth escalated 106 per cent year on year in FY21 at $1314.02 million, from just around 4 percent in FY19.
LGDs are manufactured using techniques like high pressure and high temperature (HPHT) and chemical vapour deposition (CVD). India currently leads in CVD technology. "HPHT has metal impurities whereas CVD is the purest type of diamond certified as Type IIa by all diamond grading labs," said Pooja Sheth Madhavan, MD of Limelight Lab Grown Diamonds.
The global demand
The supply from Russian diamond mines was disrupted after the start of the Ukraine war, leading to a shortage of rough diamonds. However, LGD supply and demand were unaffected.
"LGD has its own set of consumers and has witnessed growing demand in the last few years. Currently, there are more than 50 major growers in the CVD type of LGD. The major part of the LGD business, around 80 percent, is concentrated in Surat, and Mumbai, Ahmedabad, Jaipur with the other areas contributing the remaining 20 percent," Shah said.
The global LGD market size was valued at $19.3 billion in 2020 and is projected to reach $49.9 billion by 2030, at a compounded annual growth rate of 9.4 percent from 2021 to 2030. The CVD segment that led in terms of LGD market share in 2020 is expected to retain its dominance throughout the forecast period, according to a report by Allied Market Research.
Jewellery accounts for the major share of LGDs. It also finds application in the industrial sector for cutting, drilling and mining, where HPHT diamonds are used, as the quality of diamonds doesn’t matter. Newer applications of diamonds, in optics, lasers and electronics are slowly emerging, leading to more growth potential for LGDs, the report added.
At present, the US is the biggest export market for LGDs. "Around 30 percent of the export is to the US and another 30 percent to the UAE. The export will witness exponential growth in the next 2-3 years," said Vijay Mangukiya, regional chairman of GJEPC, Gujarat.
According to Pooja Sheth Madhavan, the highest number of diamonds in the US are purchased by millennials. "As per a survey conducted in the US over 70 percent of millennials in the US prefer LGDs over mined ones."
The domestic promise
The domestic market for LGDs is still in a nascent stage. "We believe that the market opportunity and growth lie in India. The country's millennial population of 41 crore people far outpaces the entire population of 38 crore people in the US. Moreover, less than 5 percent of Indian women wear and adorn diamonds. LGDs will be an opportunity for even the remaining 95 percent of women to wear affordable diamonds,’’ Pooja Sheth Madhavan said.
The government for the first time has spoken of the identity of LGDs by addressing them as eco-friendly and bearing the same properties as natural diamonds. This awareness created by the government will foster consumer confidence in LGDs leading to a huge shift in preference towards LGDs in India, she said.
LGDs are about 40 to 60 percent cheaper than natural diamonds. "Since LGDs are not mined, they save up on land damage, water wastage as well as the exorbitant mining costs, which is passed on as a benefit to the consumer. So LGDs come at nearly one-third the price of a mined diamond but without any compromise in quality," Madhavan said.
Vipul Shah reckons that India’s well-established diamond-cutting and polishing industry and a large pool of skilled workers have helped to make the country a cost-effective location for producing LGDs.
"India faces competition from other countries such as China, Russia and the US, which are also investing in the production of LGDs. Nevertheless, India remains a major player in the global LGD industry, and its position is expected to continue to grow in the coming years."
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
