What Happened
- India's gems and jewellery industry faces a potential $2 billion export loss if the West Asia conflict persists for three months, according to industry representatives
- The UAE has become India's largest jewellery export market in FY26 (till January), surpassing the US
- Nearly 50% of pearls and precious stones imported by India come from the UAE; the UAE also supplies approximately 23% of India's gold imports
- The UAE serves as a critical hub for rough diamond imports, supplying more than two-thirds of India's rough diamond requirements
- GCC countries collectively supply over 30% of India's gem and jewellery imports, providing raw materials and precious metals
- Exports of jewellery and imports of rough diamonds have slowed or temporarily halted due to widespread flight cancellations and airspace restrictions across the region
- India's gems and jewellery exports had already dropped to $29.85 billion in FY25, the lowest since FY11 (excluding the pandemic year FY21)
Static Topic Bridges
India's Gems and Jewellery Sector: Economic Significance
India's gems and jewellery sector is one of the largest in the world, contributing significantly to exports, employment, and GDP. India processes approximately 14 out of every 15 diamonds in the world, with Surat being the global hub for diamond cutting and polishing. The sector is a major foreign exchange earner and one of the fastest-growing export sectors.
- Sector contribution: ~7% of India's GDP (directly and indirectly) and ~15% of merchandise exports
- Employment: Over 5 million workers, predominantly in Surat (diamonds), Mumbai (gold jewellery), and Jaipur (gemstones)
- India processes ~90% of the world's diamonds by volume
- Major export destinations: UAE, USA, Hong Kong, Belgium, and Israel
- Gems and Jewellery Export Promotion Council (GJEPC) is the apex body for the sector
- FY25 exports: $29.85 billion (lowest since FY11, excluding pandemic year)
Connection to this news: The $2 billion potential loss represents roughly 6-7% of total annual exports, illustrating how the sector's deep integration with West Asian supply chains makes it acutely vulnerable to regional geopolitical disruptions.
UAE-India Economic Corridor and CEPA
India and the UAE signed the Comprehensive Economic Partnership Agreement (CEPA) in February 2022, which came into effect on May 1, 2022. The agreement eliminated or reduced tariffs on over 80% of tariff lines, significantly boosting bilateral trade in gems, jewellery, and precious metals. The UAE has emerged as a critical node in India's gem and jewellery supply chain, serving as both a source market for raw materials and a re-export hub.
- India-UAE CEPA: Signed February 2022, effective May 1, 2022
- Under CEPA, gold jewellery exports to UAE get preferential tariff treatment (reduced from 5% to 0% on specified quantities)
- UAE-India bilateral trade: Approximately $85 billion in FY24, with UAE being India's 3rd largest trading partner
- UAE supplies ~23% of India's gold imports and ~67% of rough diamond imports
- UAE has surpassed the US as India's largest jewellery export destination in FY26
- The I2U2 grouping (India, Israel, UAE, US) adds a strategic dimension to the economic relationship
Connection to this news: The conflict directly threatens the trade benefits realized under the CEPA framework, as airspace restrictions and logistics disruptions between India and the UAE disrupt the very supply chains the agreement was designed to strengthen.
Strait of Hormuz and India's Trade Vulnerability
The Strait of Hormuz is not only an oil chokepoint but also a critical corridor for India's non-oil trade with GCC nations. Gold, diamonds, and precious metals shipped between India and the UAE, Bahrain, and other Gulf states must navigate through or near this waterway. Any conflict-related closure or restriction of the Strait disrupts multiple categories of bilateral trade.
- Located between Iran and Oman, the Strait connects the Persian Gulf to the Gulf of Oman and the Arabian Sea
- Width at narrowest point: ~33 km; shipping lanes ~3.2 km wide
- Handles approximately 20% of global oil trade and significant non-oil commercial shipping
- India-GCC trade exceeds $150 billion annually, much of it transiting through or near the Strait
- Flight cancellations and airspace restrictions over conflict zones compound shipping disruptions, affecting high-value cargo like diamonds
Connection to this news: The halt in diamond shipments and jewellery exports due to airspace restrictions demonstrates that the Strait of Hormuz's strategic importance extends well beyond oil, affecting India's high-value merchandise trade corridors with the Gulf.
Key Facts & Data
- Potential export loss: $2 billion if conflict lasts 3 months
- UAE: India's largest jewellery export market in FY26, supplying ~50% of pearl and precious stone imports
- UAE supplies ~23% of India's gold imports and ~67% of rough diamond imports
- GCC countries: Supply over 30% of India's gem and jewellery imports
- FY25 gem and jewellery exports: $29.85 billion (lowest since FY11, excluding pandemic)
- India-UAE CEPA: Effective since May 1, 2022; provides preferential tariffs on jewellery
- India processes ~90% of the world's diamonds by volume, centered in Surat
- Sector employs over 5 million workers across the value chain