Fall in demand and rising prices of roughs is taking the sparkle out of the diamond industry, said credit rating agency CRISIL Ratings.

In a report issued on Monday CRISIL Ratings said the revenue of the Indian diamond industry is set to be cut 15-20 per cent to $19-20 billion this fiscal, compared with a decadal high last fiscal, following a double blow from falling demand and rising prices of roughs across the globe.

According to CRISIL Ratings, the Covid-19 surge and lockdowns in China-a major consumer of Indian polished diamonds- is one of the huge demand dampeners

"Additionally, inflation and opening up of other avenues of discretionary spending, such as travel and hospitality, will dampen demand growth in the US and Europe in the near term," the report said.

As for prices, the US sanctions on Russian diamond mining company Alrosa following the invasion of Ukraine has cut supplies of rough diamonds by almost 30 per cent.

The state-owned company is the largest diamond producer in the world and the supply constraint will continue amid sanctions on Russia.

Also, key buyers in the US and EU have been insisting on certificates of origin. As a result, the prices of roughs have shot up almost 30 per cent since the start of this fiscal.

"While volatility in rough diamond prices is typically passed on to the polished diamond prices -- albeit with a lag due to the long operating cycle in the trade -- tepid demand has kept polished prices from fully catching up with rough prices this time around. This could squeeze the operating profitability of Indian diamond polishers by 75-100 basis points to 4-4.25 per cent this fiscal. Accordingly, interest coverage may weaken marginally," Subodh Rai, Chief Ratings Officer said.

Further there is also a shift in consumer preference towards lab-grown diamonds which are cheaper.

"The increasing prices and short supply of natural diamonds has also meant a growing shift in consumer interest towards lab-grown diamonds, which resemble natural diamonds and are 50-60 per cent cheaper to boot, offering growth opportunities in a price sensitive market. The market share of lab-grown diamonds is estimated to have expanded to about 8 per cent presently from less than 3 per cent two years ago," Rahul Guha, Director said.