India is the world's fifth largest market for diamond jeweler after the US, China, Europe and Japan. It is now poised to leapfrog two places, says the Boston-based Bain & Company in its annual report for the sector.
"We believe India has the potential to be the fastest-growing diamond jewelry market in coming years on the strength of increasing urbanization, middle-class expansion and engagement ring penetration," said the report.
The demand for diamond jewellery is driven by continued economic growth and disposable incomes. India registered a 7.5 per cent GDP growth rate in 2015 along with a 9 per cent rise in disposable incomes. Further, the number of middle class households in India is expected to reach around 170 million in 2030 from about 50 million at present.
But, "continued depreciation of rupee could negatively affect market growth rates in US dollar terms over the short-to-medium term," cautions the report.
What may really jolt the growth trend is the Modi government's demonetisation drive. Many leading jewelers have reported a massive decline in shoppers at retail stores. PC Jeweller Ltd., a retail business, has been seeing only about 40 percent of the foot traffic since the demonetization policy on November 8, Chief Financial Officer Sanjeev Bhatia told Bloomberg.
Even Russia's Alrosa has raised concerns over the impact of demonetization on the diamond industry in India but feels the impact will be temporary. "India's currency reform will lead to a temporary decline in the activity of India's small and middle-size diamond cutting companies, which also affected the low-end small-size rough diamond segment," Yury Okoemov, Alrosa's vice president, said in a statement.
