The shakeout in the Indian diamond cutting and polishing industry has begun to accelerate. The incident where a diamond cutter demonstrating for higher wages was killed in Surat is one of the visible signs of this. There were more protests in Ahmedabad and I don’t think the whole thing is going to die down in a hurry despite the call for calm negotiations by the upset chairman of the Gem & Jewellery Export Promotion Council.

Sanjay Kothari’s statement actually encapsulates the situation extremely well. Inflation in India is currently raging in the region of 12% (many market gurus say it is much higher) and the cost of food alone has risen by over 30% in the last few months. You can absolutely understand why the cutters are agitating for more wages. Most unit owners do too. Almost all of them have agreed to hike wages. Just a handful of them are resisting. This isn’t because these are bad people. They literally can’t afford to pay higher wages because they’re teetering on the edge themselves.

The Indian diamond market has been in the doldrums for some time now. There isn’t much movement and business sentiment is really depressed. The Indian industry’s problems began long before the slowdown in the US. There was a massive build-up of production capacity a few years ago and right now, India has a huge overkill in production capacity. Many units had already shut down forever before the US slowdown became apparent. They just couldn’t chase down supplies of rough at prices that would afford them a decent spread. The slowdown in the US multiplied the agony many times over. There are many more units just hanging in by their fingernails today. Sadly, the hard truth is there is still production overcapacity in India and the ground reality is that many more units will probably close before year’s end.