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Nirav Modi scam points to illegal practices in diamond trade

As the Nirav Modi defraud case is unfolding to wider proportions, a look at the trade in diamonds, the world's hardest and most precious stones, reveal all may not be well and shining in that industry.

twitter-logoPB Jayakumar | February 16, 2018 | Updated 20:14 IST
Nirav Modi scam points to illegal practices in diamond trade

As the Nirav Modi defraud case is unfolding to wider proportions, a look at the trade in diamonds, the world's hardest and most precious stones, reveal all may not be well and shining in that industry. At Surat, where over 90 per cent of the world's diamonds are processed, people say that there is often collusion with bankers and rampant over-valuing of collateral. Import of 'conflict diamonds' or rough diamonds used by rebel movement or their allies to finance armed conflict aimed at undermining legitimate Governments in the African continent, were also in practice  till recently, say sources who wished not to be identified.

Surat and Navsari account for 90 per cent of the world's diamond cutting and polishing in about 4500 units employing over 8.5 lakh people. The diamond business here is worth nearly two lakh crore rupees a year, which accounts for 14 percent of India's forex business by value. There are 7380 affiliated diamond merchants. Put together 60,000 small and medium scale units and 18 lakh workers are directly and indirectly dependent on this industry.

Rough diamonds are mainly mined from countries like Russia, Botswana, the Democratic Republic of Congo (DRC), Australia and Canada. About 75% of the world's diamond production is controlled by global companies like Alrosa, De Beers, Dominion Diamond, Gem Diamonds, Lucara Diamond, Petra

Diamonds and Rio Tinto. About 90 percent of these diamonds come to South Gujarat for processing.  Traditionally, the diamond trading is done at Antwerp in Belgium and of late, in Dubai. Surat is also fast emerging as a global hub for diamond trading.

Sources say since most of the traders in Surat are in the SME sector, 90 percent of the trade is done with the help of credit from banks. Since most of them don't have collateral personal assets to avail credit facilities, the valuable product/raw material itself (diamonds) is shown as the collateral, most often at inflated valuations. Earlier, about 70-75 percent of the trade was done with cash, which was helpful in running a parallel cash economy in this business, run for decades based on trust and faith between the customers.

Industry experts are vehemently denying any wrong-practices in the trade. "Surat does about Rs 2000 crore of trading in a day and now 95 percent of these are digital transactions. Following the demonitisation, even local transactions are done via banks", says Nainesh Pachchigar, chairman, gems and jewellery committee of the Southern Gujarat Chamber of Commerce & Industry (SGCCI) and co-chairman of Sparkle International.

"With PAN becoming mandatory for any transactions above Rs 2 lakhs, all have migrated to legitimate banking transactions. Actually, cash transactions had started eliminating from the system since 2008 recession. Also, industry here source raw material only from highly respected sources like DTC or De Beers and other top traders" said another exporter.

They claim the Surat industry source goods only from official rough suppliers and manufacture or trade only natural diamonds.  "The industry here does not make look alike synthetic, manmade or treated diamonds and trade diamonds only with certificates from international grading laboratories that guarantee the authenticity of a diamond", they say.

But the sources say 'conflict diamond' trading is still rampant in Surat.  The stones, smuggled from African countries such as Zimbabwe, Sierra Leone and The Congo, are "conflict" diamonds without the mandatory Kimberly Process (KP) certificate, and are offered at 30 per cent lower than the price charged for stones with KP certificates. (KP is an international governmental certification scheme set up in 2003 to prevent trade in diamonds that fund conflict).

Sources say these rough diamonds are mainly smuggled into the west coast from Dubai and are sold to Surat traders who sell it in the international market along with polished diamonds from other countries. The sources say many decades old trading system and loose regulatory and monitoring systems aid those indulging in illegal practices.  

 

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