Whalesbook
1. THE SEAMLESS LINK
The recent reciprocal tariff adjustments by Washington signal a potential reprieve for India's vital gems and jewellery export sector, which experienced a significant 44.42% decline in shipments to the United States between April and December 2025, totaling $3.86 billion. This downturn starkly contrasts with the previous year's $6.95 billion during the same period. While this tariff recalibration is generally viewed as positive, the true breadth of the recovery hinges on the specifics for the high-value polished diamond segment.
2. THE STRUCTURE (The 'Smart Investor' Analysis)
The Diamond Duty Dilemma
The most pressing concern for Indian exporters remains the definitive inclusion of polished diamonds and coloured gemstones under Annexure III of the US reciprocal tariff list, which promises zero-duty access. Duties on these items, and indeed on jewellery itself, had previously surged dramatically throughout 2025, escalating from 0% to 10% by April and then to an imposing 50% by August. This escalation severely impacted margins and liquidity, with cut and polished diamond exports alone experiencing a 60% drop, falling to $1.4 billion. Jewellery import duties also saw a sharp rise from 5-7% to as high as 55-57%. While a new bilateral trade deal announced February 3, 2026, caps reciprocal tariffs at 18%, the specific zero-duty status for polished diamonds via Annexure III is the linchpin for significant market resurgence. Without this, the recovery may be constrained.
Sector-Wide Recovery Potential
Beyond diamonds, other segments are also looking towards the tariff adjustments for a much-needed boost. Gold jewellery exports faced substantial contractions, with studded gold jewellery falling 24.54% to $1.5 billion and plain gold jewellery by 29% to $183.84 million. Participants in the lab-grown diamond (LGD) trade are particularly hopeful, with Namita Kothari, founder of Akoirah by Augmont, characterizing the tariff reduction as a "timely positive for the LGD ecosystem" given the US market's global dominance. The US market for lab-grown diamonds is projected to grow significantly, with an estimated market size of $6.44 billion in 2024, potentially reaching $19.3 billion by 2033 at a CAGR of 12.99%. This sector's growth is driven by cost-effectiveness and increasing consumer preference for ethically sourced alternatives.
Competitive & Macro Headwinds
Historically, India has held a strong competitive advantage in cut and polished diamonds and jewellery components. However, the US market's recent volatility underscores a broader trend where trade friction has impacted global flows. Major competitors in jewellery exports include Italy and Switzerland, which also maintain significant market share in the US. The US remains the third-largest importer of jewellery globally, with India being a primary supplier. While the new tariff agreement is expected to bolster India's position, historical data shows that periods of high tariffs have led to considerable export volatility. Furthermore, US consumer sentiment for discretionary spending, like luxury jewellery, will be a critical factor. Elevated inflation and broader economic uncertainties could temper demand, even with reduced import costs. Analyst sentiment remains cautiously optimistic, with industry bodies like the Gem and Jewellery Export Promotion Council (GJEPC) expressing confidence in ongoing bilateral discussions. The sector's reliance on the US, though historically significant, is gradually diversifying due to FTAs with other nations like the UAE and Australia, which offer reduced duties and easier trade barriers.