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Informist, Tuesday, Oct. 8, 2024

 

By Sandeep Sinha

 

MUMBAI – India's diamond exports to Israel have been on a fall and the trend is unlikely to reverse anytime soon as Israel's ongoing offensive against Hamas has taken a toll on its economy. The widening of the war with Hezbollah in Lebanon, an economic slowdown in Israel, and credit rating downgrades of Israel by major agencies have contributed to a weak diamond demand outlook in the country.

 

In 2023-24, diamond exports to Israel plunged 47% to $719.92 million from the all-time high exports of $1.36 billion in 2021-22. In Apr-Jul, exports tanked 38.4% on year to $180.74 million from $293.69 million a year ago. Diamond accounted for over 28% share of total exports to Israel in Apr-Jul.

 

"Israel has been one of the key markets for diamond exports from India. However, the geopolitical tensions between Israel and several other countries have stretched beyond a year. This has led to a decline in diamond exports from India to Israel. Due to the looming uncertainties and unstable economic condition, a weakened consumer demand for diamonds has led to the acute shrinkage in diamond exports from India," said Colin Shah, the managing director, Kama Jewelry and former chairman, Gems and Jewellery Export Promotion Council.

 

Israel is the fifth top buyer of Indian diamond, although it accounted for only 0.5% of total diamond exports from India in the financial year 2023-24 (Apr-Mar). The US is the biggest buyer of Indian diamond, followed by Hong Kong, Belgium and the United Arab Emirates.

 

"Israel is one of the global trading hubs for natural diamonds apart from Belgium and UAE. Major exports from Israel are to US while the domestic consumption is minimal," said Rahul Guha, director, CRISIL Ratings. "There are two major reasons for the slowdown in exports of diamonds to Israel from India. First, with slowdown in the US and other key markets like Hong Kong, demand has remained sluggish and hence with no demand from the end consumer market, exports to Israel from India have also remained impacted."

 

"Second, due to the ongoing geopolitical conflict in Israel and Middle East (West Asia), and the onset of Israel-Hamas war in Oct 2023, airlines operations (which acted as transport for diamonds) as well as operations of industry in the country were impacted," Guha said. Hence, other trading hubs especially the United Arab Emirates emerged as alternative to Israel. Share of United Arab Emirates in exports has increased to over 10% followed by Belgium, Guha said.

 

The Israeli finance ministry estimated the cost of war in Gaza through August at $26.4 billion. This figure is likely to increase significantly as Israel Army began ground offensive in Lebanon. According to the Times of Israel, the war cost was very high due to Iron Dome air defences, large-scale troop mobilisation and intensive bombing campaigns. In 2024, its debt-to-GDP had hit 67%, while its fiscal deficit was 8.3% of GDP, well above the 6.6% previously expected.

 

"Ongoing slowdown is expected to continue as India's polished natural diamond exports are expected to fall 25-27% in fiscal 2024-2025", Guha said. Also, with the geopolitical conflict increasing and spreading to the rest of West Asia, Israel's positioning as global trading hub will be impacted, leading to further reduction in exports with newer trading hubs gaining traction as well.  

 

Going forward, the revival of diamond exports to this market solely relies on the betterment of the ongoing situation and we hope that the countries in conflict opt for a truce. "Diamond exporters should look at alternate export markets, as the situation may take longer than usual to swing back to normal," Shah said. End

 

Edited by Akul Nishant Akhoury

 

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