MUMBAI: The 50% tariffs on natural diamond exports from the country will have the natural diamond polishing industry which polishes 95% of the global production and nets the maximum income from the US, staring at a steep 28-30% decline in revenue to $12.50 billion this fiscal, compared to the $16 billion they netted last fiscal.
The blow will follow a 40% de-growth over the past three fiscals because of the fall in both prices as well as sales volume of natural diamonds as demand in the US and China dropped with the competition from lab-grown diamonds rose, Crisil Ratings said in a note on Thursday.
The industry, which polishes as much as 95% of the diamonds produced in the world, derives 80% of its revenue from exports with the US accounting for 35% of the exports. Sales have been falling after the US imposed 10% tariff in April 2025 and since then the share of the US in the country’s polished natural diamonds slid 1,100 bps in the first four months of this fiscal to 24%.
The whopping 50% tariffs, effective from yesterday, makes exports to the US tough for two reasons: one, the industry’s low margins make absorption of the incremental levy very difficult, and secondly declining demand for natural diamonds means passing on the incremental burden to consumers will not be easy. The resulting reduced operating leverage can erode the operating margin of polishers by 50-100 bps and burden their credit profile, the agency said in a report based on an analysis of 43 diamond polishers, accounting for nearly a fourth of the industry revenue.
Since the 10% duty from April which led to 1100 bps reduction in export share to 24% from 35% last fiscal, diamond polishers cranked up production in July and August to meet the anticipated festival demand in the US. Not surprisingly, exports surged 18% in July on-year.
However, competition from lab-grown diamonds will continue to dent revenue of the industry, with the variety having already captured 60% of the market by volume. Subdued Chinese demand adds to these woes. The US and China are the largest diamonds and lab-grown diamonds markets.
According to Rahul Guha, a senior director with Crisil Ratings, the revenue of the domestic polishers industry, which polishes as much has 95% of all diamonds produced in the world, is set to drop to its lowest since 2007. To be sure, domestic consumption has been increasing over the years, but the incremental demand doesn’t have the heft to fully offset the losses in the US and China.
Additionally, while the UAE has emerged as a dominant hub for our exports with its share doubling to 20% the risks of a substantial downturn in revenue are high, he added.
The report advised diamond polishers to either increase domestic sales, or push sales in alternative geographies or set up polishing facilities in trading hubs as rerouting via low-tariff nations is not an option. Even if retailers explore alternative sourcing options in lower-tariff countries such as the UAE or Belgium, a significant portion of the diamonds would still be polished in India and thus subject to higher tariff.
And given the falling demand, American retailers are unlikely to absorb tariff cost. Hence, operating margins of diamond polishers would decline to 3.5-4% after dropping 100 bps in the past three fiscals from a peak of 5.5% in fiscal 2023.
According to Himank Sharma, a director with Crisil Ratings, while limited reliance on external debt has helped diamond polishers maintain a stable capital structure, declining scale of operations and pressure on profitability will likely test their credit risk profiles. Specifically, while the financial leverage is expected to be relatively stable at 0.7-0.8x the interest coverage can decline to 2x from 2.3-2.5x last fiscal.