Wedding Finance

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It is no secret that in recent years India’s gemstone and jewelery trade has been marred by financial scams perpetrated by diamond dealers including Nirav Modi who is in jail and Mehul Choksi who is on the run. Not only did the misdeeds involve fraudulent bank loans, but there were also allegations involving the use of synthetic diamonds.

Synthetic diamonds are not illegal to make or use and have been in circulation for over half a century with applications for industrial purposes. Essentially, they are stones that have been manufactured in the laboratory with the reproduction of forces and processes that mimic those of natural geology and create the hardest natural substance known to man. Inherently, since this process is man-made, it becomes much easier to “harvest” larger stones, and to do them with perfection and at high frequency than to mine them under natural circumstances. Incidentally, these circumstances have historically involved exploration in war-torn areas, the alleged use of underpaid labor as depicted in films such as “Blood Diamond”, and the overarching questions that arise in terms of the environment, governance and sustainability.

Just last week, India’s largest PSU bank, SBI, decided to formally create a policy that would provide loans to lab stone makers. SBI is not alone in formally acknowledging the impact this can have.

Of course, what makes the diamond trade in India even more complex and unlike other industries, is this: it has long been known to be made up of a closed circle of a few major players from one or two ethnic groups that control the company. for generations. They usually have deep-rooted interconnections, through marital alliances and while the trade was historically controlled by Jewish traders, by the 1950s that changed. Indian immigration from around the 1970s to Belgium led to the diamond trade being dominated by ethnocentric groups such as the Palanpuri Jains, followed by Marwaris and Sindhis. Top diamond players include Rosy Blue, Kiran Gems, Mahendra Brothers and others.

If synthetic diamonds take off, the affairs and fortunes of all of the above could change overnight. Big jewelry makers like Titan have already invested ($20m for 17.5%) in a lab-grown US diamond company called Great Heights, owner of the growing Clean Origin brand.

Market giant De Beers launched Lightbox jewelry (laboratory jewelry) in 2018 with the aim of being a disruptor for the niche. According to research by diamond analyst Edahn Golan, consumption of lab-grown stones has increased from 3% to 7% in sales in the United States from 2020 to present.

On one level this is a boon for the industry in India which has seen its business shrink over the past 4 years thanks to the Nirav Modi fiasco which had given the whole sector a taint of ‘shady trade’ “, but on another level, it also raises a myriad of questions.

In terms of business opportunities, every diamond jeweler wants to see if they can capitalize on synthetic stones which have the potential to open up a new revenue stream as a product that can be consumed by low income people and young consumers who may be more sensitive to its potential. environmental attributes.

Yet, on the other hand, diamonds that were originally marketed as a must-have for wedding occasions can never be replaced by synthetics and if they were, jewelers would lose a large part of their revenue. since laboratory stones make up about a third. cheaper than natural stones.

Estimated production of lab-grown diamonds for jewelry has grown from a few hundred thousand polished carats a year just four or five years ago to nearly 3 million polished carats in 2021, worth nearly $2. billion, representing a mid- to high-single-digit percentage of the total world polished market. This figure is expected to reach nearly $4 billion by 2025.

According to industry reports, retail prices for lab-grown diamonds as well as harvesting costs have declined over the past 3 years. Data from industry body Gem & Jewelery Export Promotion Council (GJEPC) showed that $358.3 million in rough (or unpolished) lab-grown diamonds were imported between April and June 2022, compared to $255.9 million in dollars for the corresponding period of 2021.

According to trade data for America, the world’s largest diamond market, consumer spending and demand for lab-grown stones are rising even as natural diamond rings sold for engagement have lost momentum.

Here in India, while lab-made stones have yet to take off, the support they receive that gives them legitimacy could see trade shifts in two directions.

First, as noted by local Mumbai diamond dealers, prices for small natural stones may decline over the next three to five years as synthetic stones begin to pick up steam and obviously become more economical to buy for. consumers. The second is that it is likely to give rise to branded jewelry in the segment of synthetic laboratory stones.

The challenge with synthetic stones is not in their manufacture, but when they are mixed with natural stones in heavy wedding jewelry and or are presented as natural stones to unwitting buyers.

The fact is that it is complicated and expensive to differentiate a synthetic stone from a natural one because of their chemical composition which is essentially the same and can even escape diamond detectors. Mumbai-based dealers say this is something that will need to be strictly regulated and governed by both trade bodies as well as financial authorities and regulators.

Until then, diamonds will be forever but clearly not the only stones that last this long.