It's no secret that the last few years have seen the gems and jewellery trade in India tainted by financial scams that have been perpetuated by diamantaires that include Nirav Modi who is in jail and Mehul Choksi who is absconding. Not only did the misdoings involve fraudulent bank loans but there were also allegations involving the use of synthetic diamonds.

Synthetic diamonds are not illegal to make or use and have been in circulation for over a half a century with applications for industrial purposes. In essence, they are stones that have been made in a lab with the replication of forces and processes that mimic those of natural geology and create the hardest known natural substance to man. Inherently since this process is man-made it becomes much easier to "harvest" stones of larger sizes, and do them with perfection and high frequency than to mine for them in natural circumstances. These circumstances by the way have historically involved exploration in war-torn zones, the alleged use of labor who is underpaid as depicted in movies such as "Blood Diamond" and the overarching questions that arise with regards to the environment, governance and sustainability.

Just last week India's largest PSU bank SBI decided to formally create a policy that would allow for loans to be made to makers of lab-grown stones. SBI isn't the only one to have formally recognised the impact that that can have.

Of course what makes the diamond trade in India even more complex and unlike other industries is this: It has been long known that it is composed as a closed circle of a few major players across one or two ethnic groups who have been running controlling the business for generations. They usually have deep-rooted interconnections, through marital alliances and while the trade was historically controlled by Jewish traders, in the 1950's, that has changed. The Indian immigration between around the 1970s, to Belgium, led to the diamond business now seeing it dominated by ethnocentric groups such as Palanpuri Jains, followed by Marwaris and Sindhis. Top diamond players include Rosy Blue, Kiran Gems, Mahendra Brothers and others.

If synthetic diamonds take off the business and fortunes of all the above could change overnight. Large jewellery makers like Titan have already made investments ($20 million for 17.5%) in an American lab-growing diamond company called Great Heights which owns the Clean Origin brand and is fast-growing.

Market giant De Beers launched Lightbox jewellery (lab-grown jewellery) in 2018 with a view to being a disruptor for the niche. According to research by diamond analyst Edahn Golan, the consumption of lab-stones has grown from 3% to 7% in the US sales from 2020 to now.

At one level it's a boon for the industry in India that saw business shrink in the last 4 years thanks to the Nirav Modi-fiasco that had given the whole sector a "shady-trade" taint but at another level it also raises myriad questions.

At a business opportunity level every diamond jeweller wants to see if they can capitalise on synthetic stones which are likely to open a new revenue source as a product that can be consumed by those with lower income and younger consumers who may be more sensitive to its potentially environmental attributes.

Yet on the flip side of the coin, diamonds which were originally marketed as a must have for wedding occasions can never be replaced with synthetic and if they were would then see jewellers lose a large chunk of their revenue since lab-stones are around a third cheaper than natural stones.

Estimated lab-diamond production for use in jewellery has grown from just a few hundred-thousand polished carats per annum as recently as four or five years ago to almost 3 million polished carats in 2021 worth almost $2 billion, representing an estimated mid-to-high single-digit percentage of the total global polished diamond market. The figure is forecast to grow to almost $4 billion by 2025.

According to industry reports, lab grown diamond retail prices as well as harvesting costs have declined in the last 3 years. Data from industry body Gem & Jewellery Export Promotion Council's (GJEPC) data showed that $358.3 million worth 'rough (or unpolished) lab-grown diamonds were imported between April and June 2022, up from $255.9 million in the corresponding period of 2021.

According to trade data for America, the world's largest diamond market, the consumer expenditure and demand for lab-grown stones are growing even while natural diamond rings sold for engagements have lost momentum.

Here in India while lab-made stones are yet to take off the support it receives that gives it legitimacy could see changes in the trade along a couple directions.

One, as local diamantaires in Mumbai note, the prices of smaller natural stones could come down in the next three to five years as and when synthetic stones start to pick up speed and become obviously more economical to buy for consumers. The second is that it is likely to give a rise to branded jewellery in the synthetic lab stone segment.

The challenge with synthetic stones is not in the making of them but when they are mingled with natural stones in heavy-set wedding jewellery and or are passed off as natural stones to unwitting buyers.

The fact of the matter is that it is complicated and expensive to differentiate a synthetic stone from a natural one because of their chemical composition which is in essence the same, and can even elude diamond detector machinery. Mumbai-based dealers say that it's something that will need to be stringently regulated and governed both by trade bodies as well as financial authorities and regulators.

Until then diamonds will be forever but clearly not the only stones that last as long.

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