The Diamond industry worldwide is primarily dominated by India. The country processes 9 out of 10 diamonds used globally, with the majority of the processing taking place in Surat, the second-largest city in Gujarat. The city is home to over 7,000 diamond processing units, employing more than 800,000 skilled workers. In 2022-23, India exported processed diamonds worth $23.73 billion. However, since India has no diamond reserves, it relies entirely on imports for its rough diamond needs, with imports totaling $17.37 billion in 2022-23.

This situation creates a significant opportunity for laboratory-grown diamonds. Sanket Mukesh Bhai Patel, director of Greenlab Diamonds LLP, the company that presented a 7.5 carat diamond to the US first lady, believes that by becoming a major producer of laboratory-grown diamonds, India can reduce its reliance on rough diamond imports and dominate the market more effectively, thereby adding greater value in diamond processing.

The government’s Aatmanirbhar Bharat policy also aligns perfectly with the growth of laboratory-grown diamonds. In the recent Union Budget speech, Finance Minister Nirmala Sitharaman announced a grant of ₹243 crore to establish an India center for laboratory-grown diamonds at IIT-Madras. The government has also eliminated customs duty on the seeds required for producing laboratory-grown diamonds, which was previously set at 5%.

Despite these measures, India still faces challenges in dominating the laboratory-grown diamond market. China has already captured 50% of the market, compared to India’s mere 9%. The Chinese government has actively supported its industry by providing subsidies and making significant investments to create production capacity. China has flooded the global markets with cheap and substandard laboratory-grown diamonds priced lower than their production cost. To compete with China, India must rapidly build production capacity and establish an enabling policy environment to secure a larger market share.

The crisis affecting the diamond industry

The demand for natural diamonds has plummeted in the United States, the largest diamond market in the world. As a result, diamond prices have sharply declined. The battle against high inflation, combined with a slowdown in the Chinese economy, has further strained demand. Natural diamond prices now stand at levels not seen since 2004, averaging less than $5,000 per carat. Edahn Golan, CEO of Edahn Golan Diamond Research, reports a 59% drop in natural diamond prices over the past three years. With consumers increasingly favoring laboratory-grown diamonds, Golan predicts another 40% price decline. As a result, investors in natural diamonds have stopped buying them, forcing De Beers, the world’s largest diamond player, to reduce rough diamond prices by over 40%. In the first half of 2023, De Beers’ profits plummeted by 60% to $347 million.

The Indian diamond sector has been severely impacted by this crisis, with a 30% drop in exports. From April to August this year, diamond exports amounted to just $7.03 billion, compared to $10.08 billion in the same period last year. The United States accounts for 70% of India’s diamond exports, exacerbating the poor demand. Unlike previous crises that lasted a few months, this crisis has persisted for an extended period, causing significant hardship in the industry. Workers in Surat’s diamond units have experienced reduced working hours, fewer working days per week, and extended holidays, resulting in lower income. Workers are typically paid based on the number of carats they process.

Media reports have highlighted incidents of workers resorting to suicide due to the decline in demand. However, industry associations and union representatives argue that the situation is not as dire as portrayed. While workers’ income has indeed decreased, they are not unemployed or facing severe financial distress, according to Balubhai Vekariya, president of the Ratna Kalakar Vikas Sangh, a union for diamond workers. Several workers in multiple diamond units in and around Surat, whom Mint spoke to, support Vekariya’s perspective.

The growing popularity of laboratory-grown diamonds

Fortunately, the global diamond crisis has created opportunities for the growth of laboratory-grown diamonds, which are increasingly perceived as the perfect alternative. The decline in natural diamond prices has also led to a decrease in the price of laboratory-grown diamonds. Three years ago, laboratory-grown diamonds were sold at a 30% discount compared to mined diamonds. Today, the discount has significantly increased to 80%. Polished laboratory-grown diamonds are now available for as little as $225 per carat, making them appealing to a wide range of consumers.

The share of laboratory-grown diamonds in global diamond sales has risen to 9.3% in 2021, up from 2.4% in 2020. This trend is also reflected in Indian exports. According to data from the Gem and Jewellery Export Promotion Council, the share of polished laboratory-grown diamond exports in India’s total diamond exports stood at 9% in June 2023, compared to just 1% a few years ago.

Domestic demand for rough laboratory-grown diamonds has also seen a sharp increase. Sanket Patel of Greenlab Diamonds states that their domestic sales of rough laboratory-grown diamonds are four times higher than the previous year. This surge in demand can be attributed to the avoidance of Russian diamonds by the largest buyer, the United States. Following the Ukraine war, US buyers now insist on a declaration confirming that the exported diamonds are not of Russian origin. As a result, imports of Russian rough diamonds, which accounted for nearly 30% of India’s imports, have significantly declined. Laboratory-grown diamonds have filled the gap, preventing a more severe crisis in the diamond industry and protecting the livelihoods of workers in Surat.

The shift of domestic processors from natural diamonds to laboratory-grown diamonds is a positive signal as demand from the US continues to rise. Consumers in the US are undergoing a revolution in awareness, recognizing that laboratory-grown diamonds possess the same properties, quality, color, and clarity as natural diamonds but without the adverse environmental and social impacts. Furthermore, laboratory-grown diamonds are significantly cheaper than natural diamonds, making them more attractive to consumers. Ravi Dholakiya of Radhe Shyam Diamonds LLP, a medium-sized diamond processor in Surat, plans to enter the laboratory-grown diamond market as a processor and eventually as a producer. Experts predict that the demand for laboratory-grown diamonds will reach $55.6 billion by 2033, up from $22.3 billion in 2021.

The impact of China

To capture a substantial share of this growing demand, India needs a concerted strategy. Firstly, it must create more production capacity. Currently, only a few players like Greenlab Diamonds are manufacturing laboratory-grown diamonds at scale in India. Greenlab Diamonds, located in Ichchhapore, on the outskirts of Surat, has over 1,300 reactors for producing laboratory-grown diamonds, with each reactor costing ₹1 crore. It is estimated that there are 8,000 reactors in India. According to Patel, India needs to significantly increase its production capacity to dominate the market.

Patel highlights China’s strategy as an example. When China recognized the demand for laboratory-grown diamonds, it invested heavily in creating production capacity. The Chinese government provided a lifetime electricity subsidy of 15% (as laboratory-grown diamond production is energy-intensive) and an additional export subsidy of 13%.

Indian industry players express their preference for export relief measures instead of power subsidies. They also emphasize the need to support the production of “green diamonds,” produced using only renewable power. Given that laboratory-grown diamonds contribute to India’s self-sufficiency, they argue that a production-linked incentive scheme would be appropriate.

China, having established its capacity, is flooding the market with inexpensive diamonds. They are selling their rough diamonds below cost, as low as $40 per carat, which justifies levying anti-dumping duties on Chinese imports. Indian diamond processors, enticed by these low prices, are importing large quantities.

CVD versus HPHT

A point of contention for Sanket Patel and other Indian laboratory-grown diamond manufacturers is the inferior quality of Chinese diamonds. Chinese players employ high-pressure high-temperature (HPHT) technology to produce laboratory-grown diamonds. Developed by the Chinese military for producing diamond dust used in warheads, HPHT technology involves subjecting pure carbon to high temperature and pressure inside a metal tube to create diamonds.

In contrast, Indian producers prefer chemical vapor deposition (CVD) technology. This process involves placing a slice of an existing laboratory-grown diamond in a chamber and subjecting it to carbon-rich gas (a combination of hydrogen, methane, and nitrogen). Over approximately 20 days, the carbon gas ionizes and adheres to the diamond slice, causing it to grow and form a new diamond material. Dholakiya affirms that India is fully self-reliant in CVD technology. Over time, CVD technology has proven capable of producing diamonds superior to those created using HPHT technology, matching the color and clarity of natural diamonds.

HPHT diamonds contain metallic impurities and score 9.75 out of 10 on the Mohs scale, which measures mineral hardness. In contrast, CVD diamonds score a perfect 10 out of 10. Some experts also note that HPHT diamonds tend to lose their color and shine over time, becoming dull.

Indian laboratory-grown diamond players advocate for a joint effort by the government and the industry to promote CVD diamonds and raise awareness, both in India and internationally, about the drawbacks of HPHT diamonds. Patel believes that it is crucial to highlight the superiority of CVD technology when available.

An existential threat?

While India recognizes the potential of laboratory-grown diamonds, a global debate is underway regarding the future of the diamond market. Some experts, such as Martin Rapaport, a renowned diamond specialist, reject laboratory-grown diamonds, considering them “synthetic” and “fraudulent.” Rapaport accuses those involved in the laboratory-grown diamond trade of sacrificing the long-term value of diamonds for short-term unsustainable profits. Critics argue that Rapaport’s viewpoint fails to adapt to changing times.

Paul Rowley, head of De Beers’ diamond trading business, acknowledges that natural diamonds have experienced some cannibalization by laboratory-grown diamonds. He sees this as a macroeconomic issue rather than a denial of the real impact. Rowley’s remark from within De Beers highlights laboratory-grown diamonds as an existential threat to natural diamonds, underscoring that they cannot be dismissed as mere hype anymore.

Meanwhile, industry players in India caution that time is of the essence. Dholakiya asserts, “If India wants to make a mark in the laboratory-grown diamond space, we need to act now. China is becoming increasingly aggressive.”