Will the sparkle of India’s lab-grown diamonds last forever?

Industry facing challenges such as increasing competition from overseas and declining prices

India produces more than three million lab-grown diamonds a year and accounts for 15 per cent of global production. AFP

India is playing a significant role in the lab-grown diamond industry, positioning itself as the world's second-largest producer of precious stones created in laboratories rather than extracted from the earth.

Despite this, the industry is facing challenges due to rising competition from other countries seeking a piece of the growing market and the decreasing prices of lab-grown diamonds, analysts say.

“If the prices of lab-grown diamonds continue to decline, it may affect the profitability of lab-grown producers – a major challenge for India’s lab-grown diamond industry,” says Tanvi Shah, director of CareEdge Advisory.

“The key factor for declining lab-grown prices is demand mismatch with excess supply.”

The prices of lab-grown diamonds has undergone a significant decrease, dropping to an average of $198.22 per carat in the last financial year, which spanned from April 1, 2023, to March 31 of this year.

This is a notable decline from the previous fiscal year, when prices averaged $355.51 per carat, according to the Gem and Jewellery Export Promotion Council’s data.

Lab-grown diamonds are essentially identical with the natural gemstones, both chemically and physically. But these gems are created in a laboratory using extreme heat and pressure to expedite the production process.

The popularity of synthetic diamonds has been on the rise globally, driven by various factors such as their affordability – costing less than a tenth of the price of the cheapest natural diamonds available.

Additionally, concerns surrounding the environmental and ethical implications of mining natural diamonds have further fuelled the demand for lab-grown alternatives.

“As lab-grown diamonds are a sustainable alternative, they are now becoming a preferred choice for the youth who prioritise environmental responsibility,” says Mukesh Shah, founder of Ashth by ConsciousCarats, a lab-grown jewellery brand in India.

India, known for being a hub for cutting and polishing natural diamonds, has leveraged its expertise to expand its production of synthetic diamonds in recent years. This strategic move aligns with the growing global demand for lab-grown diamonds and positions the country as a key player in the synthetic diamond market.

“With lab-grown diamonds becoming increasingly popular around the globe, this is creating a pathway for India to penetrate the international market by leveraging craftsmen’s expertise,” says Colin Shah, managing director of Kama Jewellery and former chairman of the Gem and Jewellery Export Promotion Council.

India produces more than three million lab-grown diamonds a year and accounts for 15 per cent of global production, according to CareEdge. Only China produces more. The US, Russia and Singapore are other major manufacturers.

“India, with more than 6,000 machines and reactors for producing lab-grown diamonds, has increased its production capacity over the years,” says Ms Shah of CareEdge.

The market for lab-grown diamond jewellery in India was valued at $264.5 million in 2022 and was estimated to have grown to $300 million last year, CareEdge analysis has found.

But while natural diamonds are difficult to source and mine, these man-made diamonds can be grown in a lab in a matter of days – meaning the increase in supply has been outpacing demand, pushing down prices.

The decrease in price has significantly affected the export value of synthetic diamonds from India. According to CareEdge, exports of lab-grown diamonds from India decreased by 16.5 per cent to $1.4 billion in the last fiscal year, down from $1.68 billion the previous year.

Despite an increase in the volume of synthetic stones being exported, the total value has declined due to the substantial drop in retail prices, the consultancy says.

“Since supply is unlimited with lab-grown diamonds, many believe the prices may drop further,” says Disha Shah, founder and designer at DiAi Designs, a lab-grown diamond jewellery company based in Mumbai.

“However, we believe that demand is also increasing proportionally and there will soon be a minimum threshold beyond which prices wouldn’t decrease further.”

CareEdge acknowledges prices are expected to stabilise and exports are anticipated to partially recover in the current financial year, from April 2024 to March 2025. The consultancy projects a growth rate of 7 per cent to 9 per cent on the previous financial year, aiming to reach a value of $1.5 billion to $1.53 billion.

Several factors contribute to this projection, including sluggish demand for natural diamonds and an increasing preference for the lab-grown versions. Additionally, the depreciating rupee has enhanced India's competitiveness as an exporter.

In a move to support the industry, the Indian government recently eliminated the basic customs duty on seeds used in diamond manufacturing, reducing it from 5 per cent to zero in the latest annual budget. This decision has provided a significant boost to the export-orientated sector.

The UAE, US and Hong Kong stand out as India's primary markets for lab-grown diamond exports. The UAE accounts for 14.6 per cent of India's total exports in this category. Notably, India's shipments of lab-grown diamonds have surged 23 per cent in the last financial year compared to two years earlier, according to CareEdge.

“This was largely supported by the India-UAE Comprehensive Economic Partnership Agreement,” says Ms Shah of CareEdge, referring to the trade agreement that came into effect in May 2022, which included reduced duties on gem and jewellery exports from India to the UAE.

However, India must also be vigilant of the increasing competition posed by other manufacturers.

“There is strong competition from countries like the US, China and Singapore with their growing investment in the lab-grown diamond industry, which has the potential to dominate the global market share,” says Mr Shah of Kama Jewellery.

In addition to its impressive production capacity, India possesses several other factors that contribute to its competitive advantage over its rivals.

“Some of the major factors are cost advantage, as low labour costs reduce the overall cost of production of lab-grown diamonds,” he says.

“I believe India is truly well-positioned to witness expansion and compete with its overseas counterparts over the coming years.”

However, he warns that geopolitical tensions and a sluggish global economy may hinder export growth.

In addition to these obstacles, there are still many consumers who view lab-grown diamonds as inferior to natural stones or consider them to be counterfeit, some industry experts say.

“This misconception is due to the lack of awareness and understanding about the characteristics and production process of lab-grown diamonds,” says Mukesh Shah.

However, he and other industry members assert that this perception is slowly changing, and they are confident demand for these stones will continue to increase.

“Lab-grown diamonds have slowly and steadily been accepted,” says Ms Shah of DiAi Designs.

“We see a stark difference from when we initially launched in 2018, to today.”