Ukraine conflict will affect India's diamond polishing industry: Crisil

By

Isabelle Crossley

Published
Mar 8, 2022

U.S. and European sanctions on Russia will affect India’s diamond polishing industry which heavily relies on partially Russian state-owned diamond mining business Alrosa, according to ratings agency Crisil. 

As the Ukraine conflict nears the end of its second week, the U.S. and Europe have continued to introduce sanctions on Russian businesses and industry in response to the country invading Ukraine.

Although Alrosa assured the Indian diamond industry last week that it will maintain a smooth supply of rough diamonds, Crisil’s latest report shows that the Indian diamond polishing industry, which centres around Surat, will likely be affected. 

“Alrosa supplies ~30% of the rough diamonds globally and is a critical source for India, which imports, cuts and polishes 80-90% of the world’s roughs,” said Crisil in a media release. 

“The sanctions have severed Russia’s central bank and two major banks from the SWIFT system. While they do not prohibit business with Alrosa, trade settlement has become difficult, which could lead to supply disruptions.”

The deciding factor is likely to be how long the conflict lasts and whether or not further sanctions are imposed on Russian businesses. The conflict is also likely to lead to a rise in the prices of rough diamonds, which were already set to increase by 10-12% in the next financial year. 
 
“If the trade disruption is protracted, next quarter’s sales will be down by 25-30%, shaving off about $2-2.5 billion,” said Crisil’s director Rahul Guha, ET Bureau reported.

“That would mean flattish growth next fiscal. The decline would have been steeper but for the reasonably leaner period of the first half, when the industry generally reels in ~45% of its annual sales. Any increase in the severity or tenure of the sanctions will have a deeper impact and remains a monitorable.”