India-Russia ties set to sparkle again

Traditional defence trade with Russia may be on down slide as India is venturing into new and reliable arms markets in the West and Israel, but the ties between the two countries will still sparkle, once visiting Russian president Vladimir Putin and prime minister Narendra Modi inaugurate the World Diamond Conference on Thursday and supervise agreements to boost diamond trade. Putin, who arrived here on Wednesday evening, besides clinching deals on natural gas, nuclear power, and augmenting defence ties, will supervise signing of 12 agreements between the Russian state-control mining group Alrosa and India's Gem and Jewellery Export Promotion Council.

How will Mumbai be benefited?

A senior government official associated with preparations of Putin visit told dna that a discussion on making Mumbai a world-class trading hub was on table. "The discussion is about how to increase imports of rough diamonds from Russia to India," he said. Surat may be the centre for polishing, but the diamond trading centre has remained in Mumbai.
Russia is world's top producer of rough diamonds and the majority of them pass through India, where artisans cut and polish the gemstones before they are again exported for use in jewellery. According to the GJEPC, 14 out of 15 of world's rough diamonds are cut and polished in India.
Alrosa is due to sign about a dozen long-term contracts with Indian companies, according to India's Gem and Jewellery Export Promotion Council.


What are the proposals?

Among the proposals to attract Russian traders is to establish a special notified zone, allowing rough diamond auctions on the site and also tweaking some tax laws to make them favourable to traders. Officials here say the steps will also help to boost bilateral trade between the two countries which is stagnant at just $10 billion. Russia exports $4-billion worth of rough diamonds, but currently only about $800 million of them go directly to India.

What are the diamond traders saying?

A large number of diamond trades who have arrived here to participate in the world conference say India's bureaucratic hurdles associated with the knack of fleecing traders through taxes and corruption was big a hurdle to keep Russian diamond merchants away. "They would prefer to deal with us through a third country and middlemen based in Belgium and the United Arab Emirates," said a trader, who has come to attend the conference at the Vighyan Bhawan.

What is India saying?

Vipul Shah, chairman of the GJEPC said India and Russia are natural diamond partners given India's position as a major diamond polishing hub and Russia's investment in mining and exploration. "Putin's visit is of great significance and we are hopeful that the government of India will accept our proposals for direct sourcing and a special notified zone," Shah said. These notified zones will attract global diamond firms to open offices in Mumbai. "The sourcing agreement will help significantly reduce the transaction costs for Indian traders as at present, most of the Russian diamond supplies are coming via Dubai, Antwerp and Belgium," Shah said.

Are any financial issues involved?

There are also financial issues involved with the trade as financial institutions in India don't have confidence in the diamond industry. The government is working overtime with the Reserve Bank of India as well as heads of other banks such as State Bank of India and ABN Amro Bank to settle these issues.
A report by the Task Force appointed by ministry of commerce to look at ways to boost diamond trade last year had asked for measures lest the trade vanishes from India. It said the Indian diamond industry was going through a downturn phase. The total exports of cut and polished diamonds during FY 2011-12 and 2012-13 (Apr-Dec) witnessed decline of 17% and 36% respectively.
US is the major market for diamonds as exports to USA are pegged at US$ 6.1 billion higher than that from Belgium and Israel. "Our share in the US has started declining. Of late, there have been reports that China, through governmental interactions and aids, is pushing through direct deals with the African governments for the supply of rough diamonds which would put it in a strong position to merge as a major diamond manufacturer in the world," reads the task force report.