Surat, the diamond capital of India, heaved a sigh of relief on Friday when credit rating agency CRISIL said India's diamond industry is expected to remain stable this fiscal, on the back of steady demand and improved prices, although the Eurozone crisis may have some impact on gems and jewellery exports.

The credit risk profiles of India's diamond and diamond jewellery players will remain stable over the medium term, on the back of steady demand expected in key markets, and improved prices of polished diamonds in 2010-11, CRISIL said in a study of the 142 players in the industry.

It said the prices of polished diamonds will remain firm over the medium term, with exporters passing on the increase in the procurement cost of rough diamonds to customers.

With the improvement in global demand, the prices of cut and polished diamonds rebounded in the second half of 2009-10 from weak levels in the second half of 2008-09.

Looking ahead, CRISIL said, Demand from the US market, which accounts for more than half of India's gems and jewellery exports, will be steady, backed by a stable economy, and will result in moderate buoyancy in exports by Indian players over the medium term.

However, it cautioned that the prevailing crisis in Europe may affect exports. Deterioration in recessionary conditions prevailing in the European Monetary Union (Eurozone), which accounts for around a fifth of the global demand for diamond jewellery, can impact the export of gems and jewellery from India, Crisil said.

Buoyant demand and restocking by retailers drove the growth of overall gems and jewellery exports in the second half of the last fiscal, making it increase by 46 per cent.

Gems and jewellery exports increased by 15 per cent to $ 28 billion in 2009-10 over the year-ago period. Exports stood at $ 24.4 billion in 2008-09, it said.

They rose by 31.24 per cent to $ 2.46 billion in May, 2010, from $ 1.87 billion in the same month of 2009.

Rough imports to India rose 45 per cent to $1.15 billion while rough exports increased 59 percent to $90 million. Net rough imports, the extent to which imports exceeded exports, rose 44 percent to $1.06 billion.

India's June net diamond account, representing the total exports of rough and polished less total imports, fell 7 percent to a deficit of $316.3 million.

For the first half of the calendar year, polished exports grew 79 percent to $10.82 billion while polished imports increased 61 percent to $6.63 billion. Net polished exports rose 74 percent to $4.18 billion.

India's rough imports increased by 120 percent to $5.83 billion, while rough exports grew 46 percent to $464.2 million. Net rough imports for the half year rose 144 percent to $5.37 billion.

India's net diamond account registered a deficit of $1.19 billion compared with a net diamond account of $148.2 million one year ago.

India