By Dipankar De Sarkar, London, July 10, 2008 (IANS)

Nearly 35% of British exports to India consist of rough diamonds - a startling fact that calls into question the quality of trade between two countries that are in the midst of an historic upturn in economic and political ties. Figures shown by the London-based Commonwealth Business Council ahead of the publication of a major trade report later this month show rough diamonds accounted for as much as 70% of British exports to India until two years ago.

Nearly half that level now, they still account for 33% of exports, often concealed in official trade reports as 'non-metallic mineral manufactures'. Scrap metals account for another 3%. "When these figures were first shown to a group of MPs in London, they nearly fell off their chairs," said one economist requesting anonymity.

Analysts say the big presence of the sparkling stone is explained by the fact that the company responsible for exporting most of the world's diamond, the Diamond Trading Company (DTC) is based in London, although it also has an office in South Africa and partnership operations with governments in Botswana and Namibia. Owned by the multinational De Beers, DTC is the world's largest distributor of diamonds, accounting for 40% of diamonds bought and sold in the global market.

Although India is the third largest consumer of diamonds, with an 8% share after America (51%) and Japan (11%), much of the diamonds sold to India through Britain are thought to head straight to Surat, Gujarat, for cutting and polishing. Eleven out of every 12 diamonds sold around the world are processed in India, irrespective of where they are mined. In terms of value, the exported precious stones are worth around 1.1 billion pounds ($2 billion).

The CBC figures, which are to be released officially later this month in its report, "India UK Trade and Investment Flows 2008", are backed up by British government statistics. Figures with the UK Trade and Investment (UKTI), a government department, show rough diamonds comprised "around 25 to 30%" of British exports to India in the first three months of this year, a UKTI spokeswoman told IANS.

The CBC report, whose theme is "Achieving Economic Alignment", points out that top British exports around the world include road vehicles, medicinal and pharmaceutical products, power equipment, telecommunication equipment and electrical equipment. Yet, few of these feature in British exports to India. A senior CBC official said the situation is improving. "Currently diamonds are at 33% and scrap metal has fallen drastically to 3-4 %, compared to say two years ago when these two line items made up 70% of British exports to India," Sanmit Ahuja, director of investments and ventures at CBC, told IANS.

"So the quality of trade is improving," he added.

With the pound gaining in strength and faced with intense competition from China and other Asian countries, the outlook for British exporters for India is "at best stable in the near future", Ahuja said. "Growth will come from British companies adopting to manufacture locally in India and bringing the cost down. This concept is not very well adopted by British companies as they fear intellectual property infringement and loss of control.

"In this rapidly globalising world, there is no option but to collaborate or else risk losing trade," he added.

According to the UKTI spokeswoman, the large volume of diamonds exported to India is consistent with the fact that 60% of British exports do not originate in Britain. "Rough can come from anywhere, but the billing is done here," she said. The rough diamonds exported from Britain would be 'conflict free' - that is, they are certified by the internationally-agreed Kimberley Process (KP), which ensures that their sale have not been used to fund African conflicts.

However, a spokesman for Global Witness - which has led an international campaign to ban the trade in 'conflict diamonds' - said it was hard to tell if all diamonds entering and leaving Europe were conflict-free. "Those that are coming through the official channels would have all the paperwork. But what else comes in and goes out, we can't tell. Diamonds are very easy to smuggle," said Mike Davies.