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Cash running dry, diamond city loses it’s shine

December 15, 2016 12:51 am | Updated 10:17 am IST - AHMEDABAD

In Diamond City, Surat, the continued liquidity crunch has taken the shine off the glittering Rs. 80,000-crore industry.

The diamond business provides employment, direct and indirect, to approximately eight lakh people in the city. Around a dozen top merchants control close to 40 per cent of the city’s diamond business, and directly procure rough stones and export the polished diamonds internationally; between them, they employ thousands of workers. “We big players are surviving,” says leading diamond baron Vasant Gajera. “But it’s very difficult for smaller factories employing 20 to 50 persons each. It will take several months before the situation becomes normal again.”

That lower end of the business, over 60 per cent of its strength, comprises 50,000 brokers and thousands of smaller cutting and polishing units. Here, everything, from procuring the rough diamonds, the payments to supplying the finished products back to traders and brokers, is transacted in cash. The sudden demonetisation of high-value currency has disrupted this entire value chain.

After the Diwali vacation, hundreds of the small cutting and polishing units have not re-opened, leaving thousands of workers unemployed. A sense of crisis is evidence from a walk through the city’s Mini Bazar, the diamond trading hub, or Varachha, where the factories are.

Locals appear clueless on when the situation will improve. Mukesh Patel, a 28 year old diamond worker, says, “I am back from my village in Botad after Diwali vacation but the factory I worked has reduced manpower strength from 25 to just 10 because of cash crunch. If things continue this way for long, there will be massive lay-off.”

“As of now, more than 20,000 diamond workers have already lost jobs, as small units — operating five to ten machines — have shut their operations as they have no money to continue running operations,” said Jaysukh Patel, President of Diamond Workers' Union in Surat. Mr. Patel says that the union will soon ask the government authorities to provide unemployment allowance to those rendered jobless.

“The small factories are mostly shut, or working on reduced strength for reduced hours, because they have no cash to do business,” said Pravin Nanavaty, former President of Surat Diamond Association, a forum of factory owners. Mr. Nanavaty says that even 35 days after the demonetisation anouncement, there is no cash in the market and banks are not dispensing new currency.

“We cannot go on digital or e-payment mode overnight,” a diamond trader, who requested anonymity, told The Hindu . “The government should have realised various aspects before embarking upon this ambitious exercise.”

According to insiders, small factories set up in Ahmedabad, Bhavnagar and Amreli have also been hit with demonetisation and liquidity crunch.

The effects of the crisis go far beyond Surat and these cities. Recently, Bruce Cleaver, CEO of De Beers, one of the world’s largest diamond companies, said, “The trade in lower value rough diamonds is experiencing a temporary slowdown as a result of the demonetisation program in India.”

The company’s sales of rough diamonds dropped to from $476 million to $418 million over the past month. the company figures show.

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