In a dramatic turn for one of the world’s most vital industries, India’s gems and jewellery sector – valued at approximately $32 billion – is bracing for a severe setback as the United States imposes a 26% reciprocal tariff on its exports. This decision, announced as part of a broader US trade strategy, has sent shockwaves through the industry, which employs millions and is the backbone of India’s diamond cutting and polishing prowess. The move, viewed as a punitive measure under the global trade policy once championed by former President Donald Trump, could disrupt supply chains, alter market dynamics, and lead to significant job losses across the South Asian nation.

A Pillar of the Global Diamond Industry

India’s position as the world’s largest hub for diamond processing is undisputed. Handling nine out of every ten diamonds processed globally, the country has built a reputation for precision and quality that is hard to match. Its jewellery exports, which constitute the third-largest export category to the United States after engineering and electronics, have historically been a major driver of economic growth. Nearly $10 billion of these exports are directed to the American market, underscoring the deep economic interdependence between the two nations.

The industry, however, is now facing a stark challenge. The newly imposed 26% tariff is significantly higher than what many in the sector had anticipated. “The tariff is higher than expected,” said Colin Shah, managing director of Kama Jewelry, one of India’s leading diamond jewellery manufacturers. “It is quite severe and will affect exports.” For a sector already reeling from a 14.5% decline in exports during the 2023-24 fiscal year due to weak demand from China, this development threatens to compound existing issues and could set off a chain reaction of economic consequences.

Economic and Social Implications

Impact on Export Volumes and Employment

The immediate fallout of the tariff is expected to be a sharp decline in India’s jewellery exports. With the US accounting for nearly a third of these exports, the loss of market competitiveness could result in reduced order volumes, leading to lower revenues for manufacturers and exporters. In a sector that supports millions of jobs, from skilled artisans in bustling workshops in Kolkata to logistics personnel in sprawling export hubs, the ripple effects could be profound.

Many workers in India’s gem and jewellery industry depend on the steady flow of orders from international markets. The imposition of these tariffs threatens to not only disrupt their livelihoods but also jeopardize the intricate network of small and medium enterprises that have grown around this vibrant sector. As companies brace for a potential downturn, there is mounting concern over possible layoffs and a slowdown in ancillary industries, including mining, cutting, and polishing, which all play crucial roles in the value chain.

Supply Chain Disruptions and Price Volatility

Beyond employment, the tariff is poised to trigger significant supply chain disruptions. India’s jewellery supply chain is a delicate ecosystem that spans continents – from the sourcing of rough diamonds in Africa to the cutting and polishing in India, and finally, the assembly and sale in markets like the US and Europe. Any disruption in one part of this chain can have cascading effects throughout the entire system.

Analysts warn that the tariff could lead to increased price volatility, as manufacturers grapple with higher costs and diminished demand. With production costs likely to rise, companies may either absorb these costs, risking lower profit margins, or pass them on to consumers, which could further dampen demand in a highly competitive global market.

The Trade War and Its Broader Context

A Legacy of Tensions

The current tariff imposition is not an isolated incident but rather part of a larger pattern of trade tensions that have characterized US-India economic relations in recent years. Under the global trade policies of former President Donald Trump, the US adopted a more aggressive stance towards what it viewed as unfair trade practices. Although the Trump administration is no longer in power, elements of that policy legacy continue to influence American trade strategy, especially as global competition intensifies and domestic pressures mount to protect local industries.

India, for its part, has long sought relief from what it perceives as discriminatory measures that disadvantage its exporters. The jewellery sector, in particular, has been vocal about the need for fair trade practices that recognize the unique challenges and competitive advantages inherent in its manufacturing ecosystem. The current tariff not only undermines these efforts but also places additional strain on an industry already grappling with demand-side challenges in other key markets such as China.

Negotiations and Hopes for a Trade Deal

In the midst of this uncertainty, there is a glimmer of hope on the horizon. Talks are underway between India and the United States to negotiate a bilateral trade deal that could potentially soften the blow of the tariffs. Industry insiders and trade experts are optimistic that an early resolution might be within reach. “We are pretty hopeful that India could land a trade deal with the U.S. in the next few months,” said Shaunak Parikh, vice chairman of the Gem and Jewellery Export Promotion Council. “So, we just need to push through this tough phase for a little while longer.”

Such a deal would not only address the current tariff issue but also pave the way for a more balanced trade relationship between the two economic giants. However, the negotiation process is fraught with challenges. It requires navigating complex geopolitical landscapes, reconciling differing economic priorities, and addressing longstanding grievances that have built up over years of contentious trade policies.

Global Implications and the Role of the US Market

The US: A Crucial, Yet Volatile, Market

The United States remains a critical market for India’s jewellery exports, accounting for roughly 30.4% of its total output. Yet, this reliance on a single market also represents a strategic vulnerability. The imposition of the 26% tariff serves as a stark reminder of how external policies can have far-reaching impacts on domestic industries. It also raises questions about the long-term sustainability of relying so heavily on one market for export revenue.

In response to these challenges, some industry leaders are calling for a more diversified export strategy. Expanding into emerging markets in Asia, Europe, and the Middle East could provide a buffer against future shocks and help to stabilize the sector. Moreover, strengthening domestic demand through targeted policy measures might also play a role in mitigating the risks associated with overdependence on any single market.

Shifts in Global Supply Chains

The ripple effects of the tariff extend beyond India’s borders, touching on broader trends in global supply chains. As companies reassess their sourcing and manufacturing strategies in light of increased protectionism, there is a growing trend towards reshoring and regionalization of production. For India’s jewellery industry, this could mean a reconfiguration of supply chains, with an increased focus on fostering closer economic ties within the Asia-Pacific region.

In this context, the role of technology and innovation cannot be overstated. Digital platforms and advanced analytics are increasingly being leveraged to optimize supply chain management, reduce costs, and improve market responsiveness. By embracing these technological advancements, Indian jewellery manufacturers may be able to mitigate some of the adverse effects of the tariffs and maintain their competitive edge in the global market.

Humanizing the Impact: Stories from the Ground

Artisans at the Heart of the Industry

Behind the staggering export figures and complex trade negotiations lie the stories of millions of artisans whose lives depend on the success of India’s jewellery industry. In bustling workshops across Kolkata, Jaipur, and Surat, skilled craftsmen and craftswomen pour their hearts into every piece of jewellery they create. For many of these artisans, the jewellery trade is not just a livelihood but a legacy passed down through generations.

Take the story of Meera, a master jeweller in Kolkata, whose family has been in the business for over a century. “Every diamond we cut tells a story of our heritage and passion,” Meera explains. “But now, with these tariffs, I worry about the future of our craft. Our work is an art, and we fear that the economic pressures may force us to compromise on quality.” Her concerns echo those of many in the industry who fear that financial strain could erode the high standards that have defined Indian jewellery on the global stage.

Community and Economic Resilience

The broader community impact of the tariff is equally significant. In many parts of India, jewellery manufacturing is a community affair. Entire neighborhoods are built around these industries, with local economies thriving on the interdependence of related trades—from raw material suppliers to logistics and retail. The potential downturn in exports could have a cascading effect, leading to reduced income, increased unemployment, and social challenges that extend well beyond the factory floor.

Yet, there is also a spirit of resilience. Industry associations, trade councils, and community leaders are rallying together to support those affected by the tariff shock. Initiatives aimed at skill development, technology adoption, and market diversification are already underway, reflecting a collective commitment to safeguarding the future of this iconic industry.

Policy Responses and Industry Initiatives

Government Interventions and Advocacy

Recognizing the potential fallout from the US tariff, both the Indian government and industry bodies have intensified their advocacy efforts. The Ministry of Commerce has been in active discussions with trade representatives from the United States, seeking to negotiate tariff relief or, at the very least, a gradual phase-in of the new rates. Additionally, there are calls for the government to provide fiscal support to the affected industries, such as subsidies for technological upgrades or incentives for market diversification.

Industry bodies like the Gem and Jewellery Export Promotion Council (GJEPC) are also playing a crucial role. By organizing forums, workshops, and dialogue sessions between policymakers and industry leaders, the GJEPC aims to create a unified front to address the challenges posed by the tariff. These efforts are not merely about immediate relief but also about setting a strategic direction for the sector in a rapidly evolving global trade environment.

Embracing Innovation and Digital Transformation

In response to the mounting pressure from global tariffs and shifting market dynamics, many Indian jewellery manufacturers are turning to innovation and digital transformation as a lifeline. The integration of advanced technologies—such as blockchain for supply chain transparency, artificial intelligence for demand forecasting, and digital platforms for direct-to-consumer sales—is rapidly transforming the industry.

These innovations are not only helping companies streamline operations but also providing new avenues for reaching international buyers. By enhancing online presence and leveraging data analytics, Indian jewellers can better navigate the complexities of global trade, mitigate risks associated with tariff shocks, and tap into emerging markets. This digital revolution represents a critical evolution for an industry steeped in tradition, as it balances the art of craftsmanship with the imperatives of modern business.

A Glimpse into the Future

The Road to Trade Resolution

While the immediate outlook for India’s jewellery exports appears challenging, there is cautious optimism among industry insiders. The ongoing negotiations for a bilateral trade deal between India and the United States hold the promise of easing tariff burdens and restoring market confidence. Experts believe that a favorable trade deal could provide the necessary impetus for the industry to rebound, paving the way for renewed growth and stability.

However, the path to such a resolution is complex and requires sustained diplomatic efforts. Both sides must navigate a maze of economic interests, geopolitical considerations, and domestic pressures. In this intricate dance, the voices of industry stakeholders—from policymakers to the artisans on the ground—will play a crucial role in shaping a future that is equitable, competitive, and sustainable.

Building a Resilient and Diversified Market

In the longer term, the challenges posed by the US tariffs may serve as a catalyst for deeper structural changes within the Indian jewellery sector. Diversification—both in terms of markets and product lines—will be essential to building resilience. While the United States remains a key market, exploring opportunities in Europe, the Middle East, and emerging economies in Asia could provide a buffer against future shocks.

Moreover, fostering innovation and investing in research and development will be critical for sustaining competitive advantage. As consumer preferences evolve and technological advancements reshape global trade, the ability to adapt quickly will be the defining trait of successful players in the industry.

Conclusion: Navigating Through a Complex Landscape

India’s $32 billion gems and jewellery industry now stands at a crossroads. The imposition of a 26% reciprocal tariff by the United States is a formidable challenge that threatens to reverse years of growth and prosperity. For millions of artisans, manufacturers, and associated businesses, the tariff represents not just an economic setback but a potential existential threat to an industry that is deeply intertwined with India’s cultural and economic identity.

Yet, amid the uncertainty, there is also resilience and hope. Industry leaders like Colin Shah and Shaunak Parikh are advocating for dialogue, innovation, and strategic policy interventions. The push for a bilateral trade deal, combined with initiatives to diversify markets and embrace digital transformation, offers a roadmap for navigating through these turbulent times.

Ultimately, the story of India’s jewellery exports is not just one of tariffs and trade deficits; it is a story of passion, perseverance, and the enduring spirit of a community that has mastered the art of turning raw diamonds into dazzling symbols of human creativity. As India and the United States work toward a resolution, the hope is that both nations will find a path that balances economic interests with the broader goal of sustainable, inclusive growth.

In the end, while the current landscape is fraught with challenges, it is also rich with opportunity. The lessons learned from this tariff-induced crisis could well serve as a springboard for innovation and resilience, ensuring that India’s jewels continue to shine on the global stage for generations to come.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

3rd April, 2025