Explained: Will Surat Diamond Bourse be a game-changer in the global diamond trade landscape?

Prime Minister Narendra Modi on Sunday unveiled a groundbreaking office complex in Surat, Gujarat, surpassing the Pentagon in size and solidifying its aspirations to become the global epicenter of the diamond trade. The Surat Diamond Bourse boasts and impressive constructed area of 67 lakh square feet, making it the world's largest office complex. The project, with a price tag of approximately Rs 3,500 crore, outpaces the iconic Pentagon, a United States landmark that has stood since 1943 and encompasses an area of 65 lakh square feet.

"A symbol of steadfast commitment to excellence in the realm of precious gems, the Surat Diamond Bourse is a game-changer for the country’s economy," wrote PM Modi on X following the inauguration. The timing of the inauguration holds particular political significance as PM Modi eyes a third term in next years Lok Sabha elections. Sunday's unveiling also underscores Modi's ongoing efforts to elevate Gujarat's economic standing, exemplified by initiatives like reducing bureaucratic obstacles to foster a more business-friendly environment.

The Surat Diamond Bourse not only represents a monumental achievement in infrastructure but also serves as a key component of Modi's broader strategy to boost the economic profile of Gujarat. As the diamond capital of the world, Surat aims to attract global attention and business, positioning itself as a hub for the diamond industry.

Also read: PM Modi inaugurates Surat Diamond Bourse, world's largest office building

In addition to its sheer size and significance in the diamond trade, the Surat Diamond Bourse stands as a testament to India's commitment to modernizing and competing on a global scale. As the doors of this extraordinary complex swing open, it marks a pivotal moment not only for Surat but for India's ambitions in the global business arena.

Although Mumbai has historically served as the primary hub for diamond exports in India, Surat, renowned as the "Diamond City," has emerged as the dominant force in the processing of these precious gems. Approximately 90 percent of the world's rough diamonds undergo cutting and polishing in Surat before being distributed to buyers in destinations such as the United States and China. The newly established bourse seeks to centralize the diamond industry, providing a unified platform for various facets of the trade under one roof.

“Surat is a major cutting center and a diamond exchange is long overdue,” Eli Izhakoff, honorary president of the World Federation of Diamond Bourses, told Bloomberg. “Dealers from all over the world can do business from a secured and centralized place with confidence.”

Situated within the Diamond Research and Mercantile City, the new complex mirrors the architectural blueprint of the Gujarat International Finance Tec-City (Gift City), another flagship project spearheaded by Prime Minister Modi. Comprising nine 15-story towers and boasting approximately 4,700 offices, the Surat Diamond Bourse (SDB) is making a substantial impact, with 130 offices already operational, as reported by Nagjibhai Sakariya, the President of the Surat Diamond Bourse.

In comparison to the Israel Diamond Exchange, which spans 80,000 square meters, the SDB stands as a colossal entity. Beyond its sheer size, the Surat complex distinguishes itself by its comprehensive offerings. While the Tel Aviv counterpart accommodates over 1,000 offices, the SDB goes beyond, providing a spectrum of services including insurers, banks, a post office, a customs office, as well as entertainment, food, and religious facilities. This multifaceted approach positions the Surat Diamond Bourse as a dynamic and comprehensive hub within the global diamond industry.

In the annals of history, Surat once held a pivotal role as a crucial trade conduit linking India to nations like Britain, the Netherlands, and Portugal, owing to its strategic location along the Arabian Sea coast. However, its prominence waned during the 17th and 18th centuries with the ascent of Bombay as a primary port.

Approximately six decades ago, Surat embarked on its journey into the diamond industry, gaining momentum over time. The acceleration of its diamond operations was further catalyzed by the discovery of substantial deposits in Australia and India's economic reforms in the 1990s. Despite these advancements, Mumbai, located around 280 kilometers (174 miles) to the south, retained its status as the predominant trading hub due to its superior connectivity with the global markets.

Surat's evolution as a diamond manufacturing hub persisted, attracting migrants from various corners of the country seeking employment as polishers. However, the industry faced a significant setback in 1994 when an outbreak of pneumonic plague prompted an exodus of workers from Surat. Subsequent to bringing the outbreak under control, Surat underwent a substantial transformation in both governance and infrastructure, earning recognition today as one of the cleanest cities in the country.

In the heart of Surat, specifically in Mahidharpura, the city's largest bazaar, buildings host rows of desks where traders engage in transactions with precious stones under the illumination of bright lamps. Some traders spill out onto the streets, meticulously inspecting diamonds spread out on cotton sheets. It's a bustling scene where traders often navigate the city with diamonds securely wrapped in white papers or small pouches sewn onto the insides of their shirts.

Also read: Pentagon set to shed world's largest office building tag to Surat Diamond Bourse (WATCH)

The Surat Diamond Bourse (SDB) confronts challenges in consolidating all businesses within its premises. In Surat, traders currently situated in the bazaar, benefiting from low overhead costs, may exhibit reluctance to relocate to a modern office space. A parallel scenario unfolded in Mumbai, where the Bharat Diamond Bourse encountered similar hurdles in its early years. The 2011 terrorist bombings near Mumbai's diamond district and the subsequent closure of the customs services building expedited businesses' transition to new offices in the suburban Bandra-Kurla Complex.

Resistance may also emanate from some Mumbai-based diamond businesses considering a move to Surat. Although the cost of living is lower in Surat, and the new bourse's concentration of businesses minimizes commuting needs, potential hesitations persist. The bourse's location on the outskirts of Surat lacks nearby amenities and entertainment options, contributing to reservations. Additionally, Surat faces connectivity challenges, with its airport currently facilitating only one international flight, destined for Sharjah in the United Arab Emirates. Overcoming these hurdles will be pivotal for the Surat Diamond Bourse to realize its full potential as a centralized hub for the global diamond industry.

The geopolitical landscape poses an additional hurdle for the diamond industry in Surat. A significant portion of the diamonds processed in the city originates from Siberia, and the sector has faced challenges due to US sanctions imposed on a Russian diamond miner following the country's invasion of Ukraine. The impending ban by the Group of Seven nations on Russian diamond imports, scheduled to take effect on January 1, was previously delayed due to efforts by diamond-importing nations and industry lobbying.

According to Sakariya, a revival in diamond sales hinges on a recovery in consumer spending in the US and China. Nevertheless, he acknowledges that the current slowdown is part of the industry's normal cyclical nature. Despite these challenges, the diamond sector in Surat has demonstrated resilience, with industry professionals accustomed to navigating and adapting to fluctuating conditions.