US Tariffs expected to cut India’s diamond exports by 10% in FY26

The US administration—led by President Donald Trump—has imposed a 10% additional tax on natural diamonds, a move that directly impacts nearly one-third of India’s diamond exports to its largest market. According to a report by Crisil Ratings, this development is set to deepen the challenges faced by Indian diamantaires, who are already grappling with subdued global demand and mounting competition from rapidly growing lab-grown diamonds (LGDs).

The tariff, introduced amid shifting market dynamics, could significantly weaken the export potential of natural diamonds, further straining margins and financial stability across the value chain.

Image credit: Shutterstock

India’s diamond export industry, already under pressure from dwindling global demand and fierce competition from lab-grown diamonds (LGDs), has been dealt another blow. A 10% additional tax on natural diamonds imposed by the US administration led by former President Donald Trump is expected to significantly impact nearly one-third of India’s diamond exports to the country. According to a recent report by Crisil Ratings, this policy move is likely to further strain the financials of Indian diamantaires, with export revenues anticipated to fall by 8-10% in fiscal 2026.

The US is a major consumer of polished diamonds, and the imposition of this additional tariff is expected to make Indian natural diamonds less competitive in the international market. While the industry was already reeling under the pressures of declining demand from key markets such as China and intensifying competition from rapidly improving LGD alternatives, the tariff has added a fresh layer of challenge.

The Crisil report, which is based on an analysis of 43 diamantaires accounting for nearly a quarter of the industry’s revenues, paints a sobering picture. In FY25, revenues from natural diamond exports dropped sharply by 17% to around US$ 13.3 million. This steep decline came despite efforts by polishers to accelerate sales in the last quarter of the fiscal year in anticipation of the tariff, which helped restrict price erosion to some extent.

Rahul Guha, Senior Director at Crisil Ratings, highlighted a small silver lining for FY26. “Realisations on natural diamonds are poised to rebound 3-4% amid limited inventory across the value chain as diamantaires align their rough purchases with polished diamond sales visibility,” he stated. He added that production cuts by major miners could help support prices, although this positive trend may be overshadowed by the continued price crash of LGDs.

Lab-grown diamonds have emerged as formidable competitors to natural diamonds, especially in the US market. Their affordability, growing consumer acceptance, and sustainability credentials have helped LGDs gain significant market share. Crisil’s report notes that the price of LGDs, which was already just one-tenth the price of natural diamonds in the previous fiscal, could fall further to just one-twelfth, widening the price gap and intensifying competitive pressure. This trend could trigger an additional 12-14% drop in export volumes for natural diamonds in FY26, marking the third consecutive year of demand contraction after an aggregate 32% decline in the previous two fiscals.

This downward trend poses a particular challenge for natural diamond polishers, who traditionally operate on thin margins of 4-5%. Himank Sharma, Director at Crisil Ratings, explained, “Polishers will have limited room to absorb the additional cost burden from tariffs. Hence, upstream players like miners and downstream retailers may have to share part of the price shock. Consequently, we expect the operating margins of polishers to dip by 20-30 basis points to 4.3-4.5% this fiscal.”

Despite the pressures, there are mitigating factors that could help diamantaires weather the storm. One such factor is improved inventory management across the value chain. The report states that inventory levels could decline a further 5-7% in FY26, following a 10-15% cut last year, which will help ease working capital requirements and reduce the need for debt-funded operations. Furthermore, while receivables from export customers will remain a concern amid global economic uncertainty, overall financial leverage and interest coverage are expected to remain stable at around 0.8x and 2.5x, respectively.

India continues to be the global hub for polishing diamonds, and while challenges persist, diamantaires are taking strategic steps to align production with demand, optimize costs, and manage inventory more prudently. However, Crisil concludes that the outlook for the industry remains fragile. Key variables that need close monitoring include demand recovery in major markets like the US and China, the pricing and penetration trajectory of LGDs, potential changes to tariff structures, and broader geopolitical developments.

In this volatile environment, adaptability, innovation, and collaboration across the value chain will be crucial for Indian diamantaires to preserve competitiveness and financial health. The sparkle of natural diamonds may have dimmed for now, but with the right strategies, the industry could still find ways to shine through uncertainty.