MUMBAI, June 21: The diamond industry is likely to lose its sparkle further as Indian exporters are finding it difficult to make further dent in the recession-hit international diamond markets. The downslide which started in the previous year is unlikely to see any immediate reversal in the current year.

Industry pundits don't rule out further decline in exports. In fact, diamond exports had declined from $ 4,662 million in 1995-96 to $ 4,234 million in 1996-97 in terms of value, a decline of nearly nine per cent. Exporters in Mumbai, a major diamond hub in the world, are understandably upset with the depressed conditions.

When asked about the future, especially the recovery of the export sector, Praveen Shankar Pandya, chairman, Gem and Jewellery Export Promotion Council, said that he did not foresee any dramatic turnaround in the fortunes. Nevertheless, it is felt that the steady growth of gold jewellery at the rate of 25 per cent is vital for the export of diamonds. ``There is an urgent need to sort out gold supply problems,'' Pandya said.

``The recessionary conditions prevalent in the international diamond industry is the single largest reason for the fall in diamond exports,'' he said. Any change in the international scene will have a direct bearing on the national market. The demand recession in the Japanese market was bad for Indian exporters. Similarly, demand from US and major European markets like Germany, the UK and France also declined.

Ashish Mehta, Partner, Kantilal Chhotalal, a leading diamond export firm, endorsed Pandya's opinion on the international market. The fact that the other world centres produce high value goods and deal in areas that are insignificant in labour has been weighing heavily in the minds of Indian exporters. A far cry for the Indian industry that essentially produces labour-intensive goods.

The high interest rate level in India has added to the woes of Indian exporters. This coupled with the fact Indian exporters were forced to keep high inventories at high interest rates have taken a toll. As the other leading diamond centres like Belgium and USA hold inventories at very low costs as a result of low interest rates abroad -- Indian exporters are at a disadvantage. Now the apprehension is that other manufacturing centres like India and Israel would have to tackle increasing costs. ``The spiralling costs of holding inventories following higher rates of interest for 1996-97 have become twice than that of last year,'' Pandya said.

``Recovery is not easy... only an expansion in the market of diamond export worldwide can make it happen,'' Mehta said, adding, ``If the entire cake expands then only can there be any discernible change.'' However, the industry has maintained its steady market share of 45 per cent in the past two-and-a-half decades. There has been no perceptible improvement in exports in the last two months.

Mehta also points out the role of studded jewellery in export of diamonds. Diamonds used in studding jewellery are not accounted in the actual exports. As a result, the increase in diamond studded jewellery leads to a corresponding decrease in the export of diamonds.

As of now, India controls 45% of the world exports of diamonds in terms of value. Capturing the remaining 55% of the market share has several limitations. ``The labour cost in the other centres is very insignificant due to better technology. At the same time, the infrastructure facilities in India are poor and the borrowing costs are prohibitively high,'' Mehta said.

Even though the recession in western markets can not be controlled by the government, steps can be taken to bring down interest rates. Or, industry experts warn, diamonds won't remain for ever.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.