India’s diamond industry is facing significant strain after the US imposed a 50% reciprocal tariff, with cut and polished diamonds (CPD) exports to the US expected to decline 17–20% in FY26. Companies are expanding into alternative markets, increasing focus on lab-grown diamonds (LGDs), and tapping domestic demand. Despite brief gains, overall exports remain subdued. The Gems & Jewellery Export Promotion Council is urging government support through extended export deadlines, credit moratoriums, and SEZ flexibility to help the sector navigate ongoing global demand challenges.
India’s diamond sector faces mounting pressure nearly a month after US President Donald Trump’s 50% reciprocal tariff took effect. The duty hike, which directly affects cut and polished diamonds (CPDs), has disrupted exports to the country’s largest market and left manufacturers struggling to sustain operations. According to a report by CareEdge Ratings, if the full tariff burden is passed on to buyers, India’s CPD exports to the US could decline by 17–20% in FY26.
The US is India’s largest market for polished diamonds, accounting for 37% of the country’s CPD exports in FY25 and more than 40% of global demand. Any disruption in this market, therefore, has deep consequences for the industry.
Mr Akhil Goyal, director at CareEdge Ratings, warned that the sharp increase in tariffs will worsen the already sluggish demand. He noted that the hike in tariffs to 50% by a major diamond-consuming nation is expected to further aggravate sluggish demand in the cut and polished diamond (CPD) industry. The sector is already under pressure from competition with lab-grown diamonds (LGDs), while alternative markets like India and China offer only limited scope for offsetting the impact.
Industry challenges and strategic shifts
India’s CPD exports fell 17.5% year-on-year to US$13.3 billion in FY25. The decline was driven by three key factors:
- rising competition from more affordable lab-grown diamonds (LGDs),
- global economic challenges and inflationary pressures that have dampened consumer spending, and
- persistently weak demand from China, where the market contracted sharply from 100 billion yuan in 2021 to 43 billion yuan in 2024, a drop of 57%.
Collectively, these factors have suppressed demand for natural diamonds and caused price erosion, resulting in reduced scale and tempered profitability.
According to industry experts, although companies are diversifying markets and reducing costs, the projections appear realistic as a base case. Whether it reaches the upper end of 17–20% will depend on the recovery of US demand and any changes in tariff rates.
Some exporters had anticipated the tariff escalation and tried to safeguard shipments. They front-loaded exports to the US in August when the tariff was only 10%. However, demand from the US is currently extremely low. Companies are exploring the Middle East and European markets while also serving growing demand in the domestic market. Despite these efforts, tariffs have curtailed growth by 25–30%.
The domestic market, though growing strongly in 2025, offers only limited relief. Some firms are adopting a different strategy.
The focus is shifting from natural diamonds to the production of lab-grown diamonds (LGDs). Firms previously manufacturing CPDs from natural diamonds saw margins of just 4–5%, making continued operations unviable under the new tariffs. Lab-grown diamond (LGD) production, initially a backup, is now fully integrated due to its lower costs.
China, after a sharp decline in diamond imports since 2021, is gradually reopening. At a recent gems and jewellery trade show in Hong Kong, Indian diamond manufacturers received numerous enquiries, with the potential to convert them into orders in the coming weeks.
Meanwhile, the Gems & Jewellery Export Promotion Council (GJEPC) is lobbying the government for urgent support to help cushion the blow. Key demands include
- extending export obligation deadlines for US shipments,
- providing interest moratoriums on packing credit, and
- permitting SEZ units to conduct reverse job work and
- Domestic Tariff Area (DTA) sales to ensure factories and artisans remain engaged.
Export patterns amid rising US tariffs
India dominates global rough diamond processing, handling over 90% of the world’s polished diamonds by volume, with exports accounting for more than 46.6% of the country’s total Gems and Jewellery trade. The polished diamond industry, which earns 80% of its revenue from exports, is heavily reliant on the US, responsible for over 40% of global demand. While some shipments pass through international trading hubs, direct exports to the US represented 37% of India’s total in FY25.
Table: India’s diamond exports
| Country | FY22 | FY23 | FY24 | FY25 | 4MFY26 |
| Total (US$ Billion) | 24.4 | 22.0 | 15.9 | 13.3 | 2.8 |
| USA | 40% | 36% | 35% | 37% | 23% |
| Hong Kong | 26% | 25% | 27% | 24% | 28% |
| UAE | 7% | 9% | 10% | 12% | 19% |
| Belgium | 9% | 10% | 11% | 10% | 11% |
Source: Ministry of Commerce
After the US imposed a 10% tariff in April, India’s direct polished diamond exports to the country fell, reducing the US share of total exports to 23% in the first four months of FY26. Exports to other key markets, including the UAE and Hong Kong, rose during the same period.
In July, ahead of an additional 15% tariff effective August 7, diamond polishers achieved an 18% year-on-year export growth. Yet, despite this temporary gain, overall exports in the first five months of FY26 remain 13% lower on-year, highlighting ongoing pressure from global demand and trade conditions.
In conclusion, the US 50% tariff has intensified pressures on India’s diamond industry, affecting exports and reducing profit margins. Companies are front-loading shipments, expanding into the Middle East and Europe, and integrating lab-grown diamonds into operations. The sector’s recovery will depend on the rebound of global demand and successful market diversification, with exporters continuing to operate cautiously amid ongoing challenges.
Read more:
US Tariffs expected to cut India’s diamond exports by 10% in FY26
Lab Grown Diamonds: The eco-friendly sunrise opportunity?
FAQs
1. Why has the US imposed a 50% tariff on Indian diamonds?
The tariff is a reciprocal trade measure announced by the US, aimed at balancing trade deficits. It affects cut and polished diamonds (CPDs) from India, significantly raising their cost in the US market.
2. How will US tariffs impact diamond prices for consumers?
Higher tariffs increase the import cost of Indian polished diamonds, which could lead to higher retail prices in the US, making diamonds less affordable for consumers.
3. What is the effect of the tariff on India’s diamond exports?
India’s CPD exports to the US are expected to decline by 17–20% in FY26, impacting the global supply chain and the profitability of Indian diamond manufacturers.
4. Are lab-grown diamonds (LGDs) an alternative to natural diamonds under the tariff impact?
Yes. LGDs are gaining popularity because they are more cost-effective and face fewer trade barriers, making them an attractive alternative for consumers seeking affordable diamond jewellery.
5. Will this tariff affect global diamond availability?
Yes. India processes over 90% of the world’s polished diamonds. Reduced exports to the US could temporarily tighten supply, potentially affecting availability and prices globally.
