Significant fall in prices, eroding consumer interest and competition with imports are some of the major challenges being faced by the domestic lab-grown diamond industry, think tank GTRI said on Sunday.

It also said that while India faces the issue of production overcapacity, it continues to import lab-grown diamonds in large amounts and this issue needs deeper investigation.

To address these challenges, the government needs to take certain steps such as setting clear and consistent rules to standardize quality, certification, and market practices; issuing a Quality Control Order to check quality of imports; and investment in research and development to improve production processes, reduce costs, and enhance the quality of lab-grown diamonds.

The Global Trade Research Initiative (GTRI) said that India's lab-grown diamond industry is facing a major challenge, with prices falling by 65 per cent in the past year, from Rs 60,000 to Rs 20,000 per carat due to local overproduction and oversupply from abroad.

This sharp decline points to problems like overproduction, high imports, and lack of regulation, which are hurting consumer confidence. Urgent corrective steps are needed to get this high-growth industry back on track, it added.

Meanwhile, natural diamonds cost around Rs 3.5 lakh per carat and this price drop is making it difficult for manufacturers to repay loans taken for purchasing lab-grown diamond making machines, putting them under financial strain, it said.

Lab-grown diamonds, as the name suggests, are created in laboratories replicating the natural high pressure, high temperature conditions under which diamonds are formed in the Earth's mantle.

These diamonds are chemically, physically, and optically identical to natural diamonds. Natural diamonds come in various shapes, while lab-grown diamonds are usually square or rectangular. Lab-grown diamonds are produced in a rough form and need to be cut and polished, just like natural diamonds.

The value of a cut and polished lab-grown diamond is 6-8 times higher than its rough form.

"The industry faces several challenges, including falling prices, intensifying competition both from local and imports, and the lack of clear regulatory frameworks. These issues pose potential risks to the sustained growth and profitability of India's lab-grown diamond sector," GTRI Founder Ajay Srivastava said.

He said that the number of units producing lab-grown diamonds in India has increased to 10,000 units, leading to over supply and tougher competition.