MUMBAI: India's cut and polished diamond (CPD) industry, which supplies as much as 90 percent of the global demand, and has been in a rough phase since the past two years due global headwinds, is set for a much stormy phase ahead with the US slapping as much as 50 percent export duties on the product. The US is the world’s largest market and the industry is on course to see around 20 percent decline in volume this fiscal. This would be on top of a 17.5 percent decline in FY25 to $13.3 billion.
The problem is the significant share of India in diamond processing (90% by volume of polished diamonds) which limits the options for buyers in the near-term. And if the high tariffs are fully passed on, this will increase the price for end-consumer in the US, which happens to be the world’s largest market. But higher prices may deter them from buying or postpone buying and either options will impact the demand adversely, Care Ratings said in a note on Monday.
The rating agency also has a negative outlook for the industry as it expects a further 17-20 percent decline in CPD exports to $11 billion in FY26.
The problem for the domestic CPD industry began when the lab grown diamonds, which are priced less than quarter of the natural diamonds, began traction especially in the US and China which used to be the second largest market. This has already crimped polishers margins to single single-digit, said Yogesh Shah, a senior director with the agency.
In China, diamonds’ share in the overall jewellery market dropped from 14 percent in 2021 to 6 percent in 2024 and continues to remain subdued in 2025, reflecting broader shifts in consumer behaviour and economic dynamics.
Though rising domestic in recent years, which has made the country the world’s second-largest diamond jewellery market in 2024 and so far in 2025, this resilient demand is insufficient to offset the sharp decline in exports to key markets such as the US and China.
Coming in the wake of the already thin margins, the imposition of blanket 50% tariffs has further exacerbated pressures across the value chain, deepening concerns around revenue, profitability, liquidity, and operational resilience, the agency said.
CPD players are responding to the demand slump by curtailing production, exploring new geographies with increased focus on European and domestic market exposure and also considering relocating processing units to lower-tariff jurisdictions in the medium term.
CPD exports declined by 17.5 percent on-year to $13.3 billion in FY25. This downturn was primarily driven by three factors: rising competition from lab-grown diamonds (LGDs), which continue to capture market share due to their affordability; global economic headwinds and inflationary pressures which have eroded consumer purchasing power and discretionary spending; and continuing weak demand from China, stemming from economic slowdown, leading to a whopping 57 percent contraction in the market from 100 billion yuan in 2021 to 43 billion yuan in 2024.
Together, these factors have exerted downward pressure on the demand for natural diamonds and price erosion, which has led to dip in scale and moderation in profitability.
India dominates rough diamond processing, handling over 90 percent of the global volume of polished diamonds, and earns 80 percent of the industry revenue from exports. For the domestic gems and jewellery industry this 46.6 percent of their total business.
The US market, which account for over 40 percent of the global polished diamond demand. Although shipments may be routed through global trading hubs, domestic exports to the US directly accounted for 37 percent in FY25.
Following the imposition of a 10 percent tariff by the US from this April, direct exports were adversely affected, leading to a drop in the US share of the country’s polished diamond exports to 23 percent in the first four months of FY26. But exports to other key markets like the UAE and Hong Kong have increased during this period.
Though diamond polishers ramped up exports in July, before the imposition of additional 15 percent applicable from August 7, resulting in an 18 percent on-year growth. But despite this temporary boost, overall exports in the first five months of FY26 remain 13 percent lower on-year, reflecting continued pressure on global demand and trade dynamics.