Surat continues to be India's powerhouse

If there is one city in India, apart from Mumbai, that epitomizes the country’s burgeoning diamond industry it is undoubtedly Surat, about three hours inland from India’s financial and commercial capital. The frantic pace of activity in the diamond city leaves no doubt as to the intensity of the level of activity. The city is home to around 10,000 dealers, and is the second-biggest city in the relatively well-to-do state of Gujarat, on India's western coast. The metropolis of more than five million people is where most of the polished diamonds found all around the word are processed. The best part of $100 million of diamonds pass through the city’s streets every day, carried forward by a network of brokers, import-export firms, workshops, and couriers.

The diamond industry's annual turnover in Surat is believed to be $14 billion, with around 500,000 workers employed at some 4,000 businesses of all sizes. The Indian Diamond Institute certifies more than 1,000 students a year. The work of Surat diamond businesses typically takes place in relatively tiny rooms serving as workshops where a small group of workers sit on the ground and process diamonds.

The scale of the city's diamond activities can be seen in the fact that it is responsible for close to 10 percent of Indian's total merchandise exports. The majority of the polished diamonds are exported to the United States, Hong Kong and the United Arab Emirates.
 
Foreign visitors to the diamond districts of Mumbai and Surat are often flabbergasted at the apparent lack of security. That has changed considerably in Mumbai with the opening of the Bharat Diamond Bourse two years ago and the transfer of many businesses away from the decrepit Opera House complex. Nonetheless, many diamond firms have remained in the downtown area with security being far below the levels seen at diamond bourses and buildings in Israel, Belgium and New York. And a similar situation, indeed a more extreme version, pertains in Surat.

Brokers and dealers simply keep their diamonds in special vests with pockets that they wear underneath their shirts. Moving around the offices and businesses of the city on their bikes, they appear to have large stomachs due to the bags of diamonds and money. Diamond company owners, however, say that although security is not as organized as abroad, the diffusion of activities makes the possibility of a large-scale heist, such as the $50 million theft that took place at Brussels airport in February, unlikely. "That could never happen in Surat for one simple reason," said a former diamond industry head in the city. "The diamond trade here is very diffused. There are rarely, if ever, large amounts of diamonds in any one location.

"That means that even if there was a theft, the amount of goods that could be stolen is relatively small. To outsiders, we might appear susceptible to thefts and raids, but the fact on the ground is that we all know each other so it would be highly improbable that thieves could get away with a theft. In addition, because we are all so closely connected, any imposters would very likely be tracked down in a short time,” he added.

Indeed, the main concern of both diamond industry leaders and of police in the city is less that of thefts and heists and more to do with possible terror attacks. The industry remembers well the last serious attack in Mumbai in 2011 in the Opera House area. As a result, the city has organized the installation of 140 closed circuit TV cameras, with another 500 to be added. The city's diamond firms are financing the extra security measures.

The most worrying aspect of operations in Surat is trading in conflict diamonds often sold at a discount of up to 30 percent and mixed with legitimate stones that are certified by the Kimberley Process. In addition, tax evasion is believed to take place on a huge scale. "Think about it," says one diamantaire with long experience of dealing with the Surat diamond business. "There are hundreds, if not thousands of small, and even tiny, businesses trading with each other. Diamonds move between them at a dizzying pace and business is typically conducted in secret. The tax authorities would find it extremely difficult to track diamonds and the small firms that are involved, so they don't really bother."

There are also enormous problems of health and safety. Given the informal nature of the business, and the relative ease with which workers can be replaced, the health and working conditions for employees are usually appalling. Many workers, for example, lose their sight as a result of spending long hours every day examining diamonds: At the age of 40, they often have developed cataracts and do not have the financial means to afford an operation, effectively bringing their careers in the diamond industry to a close.
 
Although Surat is a powerful diamond processing and trading city, and India's largest diamond cutting and polishing center, it nonetheless faces challenges from other cities in India. That was brought on by the move to fire around half the city's half million diamond workers as a result of the downturn that followed the global financial crisis that struck in the final quarter of 2008.

Many ex-employees moved to the textile industry or back to their villages to again work in agriculture. As a result, it was difficult to find good diamond polishers. However, employers were not forced to raise salaries substantially because manufacturing capacity was not back to its previous levels.
The country's diamond manufacturers are being cautious due to volatility in global markets. There is a strong reluctance to commit to large projects, with highly specific production relating to goods for which there is a good demand being the order of the day.
 
The Gem & Jewellery Export Promotion Council (GJEPC) announced in April that the contribution of the Indian gems and jewelry sector to the national economy in foreign exchange earnings for fiscal year 2012-2013 was $2.13 billion, a huge jump of 154 percent from the previous fiscal year. In addition, there was a 12.7-percent increase in imports of rough diamonds, and a 33-percent jump in gold jewelry exports. The GJEPC reported overall gem and jewelry exports for the year of just over $39 billion.

There was a substantial drop in imports of cut and polished diamonds (61.5 percent), which helped reduce India’s foreign exchange spending and slashed its current account deficit.

“The results have been quite favorable this year,” said GJEPC Chairman Vipul Shah. “The industry has strived hard towards reducing India’s current account deficit by controlling imports and increasing exports. The industry’s contribution towards India’s exchequer has also seen a staggering rise of 154 percent.
“At a time when the industry was going through a challenging period, governmental regulations related to the reintroduction of bonded warehouse facility for diamond exporters and revision in [the] duty drawback rate facility for gold jewelry exporters has helped strengthen the industry further.”
 
As for the outlook for fiscal year 2013-2014, Shah said it was positive with an estimated growth of 12-15 percent in overall gem and jewelry exports. “The U.S. and Japanese jewelry markets will bounce back with an estimated 5-percent growth while China will remain stable at 10-percent growth,” he added.

The GJEPC said that proposals for the current fiscal year include regulatory measures, such as introduction of consignment imports of diamonds, the start of rough diamonds tenders and auctions in India as well as the formation of a committee for looking into lending norms for banks to the diamond and jewelry sector.