In the sumptuous seven-storey headquarters of Blue Star Diamonds, three grandsons of the company's founder Vasantlal Mehta - Arjav, Arnav and Anshul - are assembling for a family wedding. The chrome and black leather office furniture and the black and white marble flooring would not look out of place in a five-star hotel. Neither would the young Mehtas, dressed in preppy gingham shirts and pressed chinos, with international accents that reflect educations spread between India, Belgium and London. Vasantlal Mehta was patriarch of one of the small number of families from the tiny town of Palanpur who first realised that low-cost Indian workers could cut small diamonds that had previously been seen as uneconomic, opening up a whole new market in affordable diamonds. Since the old smokestack textile town of Surat entered the world's diamond business in the 1960s, it has become the unrivalled global centre for diamond cutting and polishing. Eleven out of every 12 diamonds are cut and polished in India, and four out of five of these are cut here in Surat, making diamonds a US$10 billion (Dh36.7bn) industry. The Mehtas buy their rough diamonds directly from De Beers's London arm, the Diamond Trading Company (DTC), the Russians or independent producers. They have no need of the markets in Surat's Mahidharpura district. The families who originally broke the dominance of Hasidic Jews in the world's diamond business - almost all of them followers of the Jain religion from the village of Palanpur near Surat - have become some of India's richest businessmen. "We target bigger jewellery players," says Arnav Mehta. "I can cater to Harvey Weinstein and I can cater to Sterling, we even sell to Wal-Mart," he says, then proceeds to rattle off a rapid-fire analysis of consumer tastes. "The Americans want a bigger stone by paying the least amount. The Japanese want perfection," he adds, stressing the high levels of subjectivity in the diamond business. Their state of the art cutting facility housed here combines laser cutters, robots and computer modelling, with 1,200 highly skilled polishing staff. A half-hour taxi ride from their plush offices in Varachha is an area called Little Saurashtra, home to a different kind of diamond cutter. Business for these low-paid workers is bad - and getting worse. Ramesh Bhuva is one cutter glad he left the diamond business behind. Last year, fed up with living with ever-tightening profit margins, he sold his diamond cutting equipment, laid off his workers and invested a hefty chunk of his savings - more than $25,000 - on a bank of embroidery machines. Ramesh now has just five textile workers hovering over his machines in his factory in the rough and tumble Little Saurashtra district of Surat in India, stitching coloured patterns onto red, black, orange, yellow and blue sari cloth in his factory. The workshop, he says, has been generating profits of more than $1,000 a month. His brother, Savji, who still has his diamond cutting factory four floors above, was not so lucky. At the end of June, Savji's 25 workers joined a citywide strike that won his workers a 20 per cent pay hike. By the second half of July, Savji himself was on the streets, joining other manufacturers in protests against delayed payments from the city's diamond traders, a protest that ended up being charged by police. "It has not been good for any small manufacturers," says Savji. "All we need is a good period of three months to recover our losses, but we are slowly losing hope." Meanwhile, India's double-digit inflation has left workers struggling. Kalu, a diamond worker, said he had barely been able to feed his family: "The prices of daily needs had increased a lot and our wages had not seen a rise since a very long time. It was difficult for us to survive with our families back home in their village." It is easy to see why Savji's workers took to the streets. When we visited his factory at 8.30 at night, his 25 workers were still at their cutting tables, four to each one, grinding tiny stones onto rotating disks to create each of the 57 facets of the classic diamond cut. It is not until 10pm that a gas fire is lit and a pile of flat chapatti bread begins to mount on a sheet of newspaper spread on the floor. At 8am, they wake again to prepare for another day at the grindstone. Even with these long hours, eating and sleeping in the workshop, they can still only afford to send about $70 home a month. "I only keep what I need for food and clothes, the rest I send home," says Harish, one of Savji's staff. And it is not easy work. "We have to have a lot of concentration, so by the end of the day we are totally exhausted," complains Arjun Batli, 25. "We are totally brain-dead when we take the day off." Every Sunday, Savji's team travel the 30km back to Kim, the village most of them share. The difference between diamond workers and those who have stayed at home is easy to spot during the village cricket matches. "We are not as healthy as the people still in the village. We can't remain enthusiastic throughout the whole day," complains Batli. Surat's workers have barely had a pay rise since 1998 and Savji admits that the hike could not be avoided: "Both manufacturers and labourers believe that the 20 per cent increase was justified," he says. But it has not made business easy. In mid-July, Ghanshyam, one of Savji's rivals, committed suicide. And Pankaj, Savji's cousin, estimates that as many as a quarter of Surat's diamond manufacturers have shut down in the past few years. The manufacturers have taken out some of their anger on the traders, forcing them to agree to pay manufacturers on time. But the tense atmosphere at Jadakhada Road - the shabby street that is the centre of Surat's Mahidharpura market - shows that the traders are, if anything, even worse off. When a rare visitor comes to hear their grievances, brokers jostle aggressively, each trying to get his feelings heard. "Now the diamond business is zero value," complains Kamlesh Kumar. "In the last two months, there's been a lot of struggle." Kiranbhai, a 60-year-old veteran diamond broker, says that in his entire 30-year career, he has never seen times as tough. "The market is so bad that we are even thinking about how we will get food," he complains. With consumers in the US - the world's most avid buyers of diamonds - cutting back on luxury items, Surat has been one of the first places to suffer. Even Anshul Mehta, 22, who left London's Regent's business school last year is realistic. "We are selling an illusion here," he says. "There's no utility in a diamond." And the US market is not even the most serious problem facing the town's diamond business. De Beers, the world's leading diamond miner, has begun diverting its rough stones to be cut in the African nations where it has its mines, leading to a dearth of raw material. Blue Star, however, now cuts larger stones, with an average size of one carat, far higher than the bread and butter work done by Savji's factory. Arjav Mehta agrees with Savji that the small producers will be hurt first, but doesn't expect the big players to be unscathed: "We see a big problem right now, because America hasn't had a Christmas and it's really hitting the market. It will start with the small guys, but when it becomes unviable for the big guys, they too will have to let people go." Bharat Shah, a well known trader, blames De Beers's DTC: "What do the DTC do for the diamond people here? Nothing!" he rages. "DTC hasn't opened a school, hasn't opened any hospitals. For the last 30 years, DTC has been getting all their business from this place. They have a responsibility." He pulls a short mustachioed man roughly from the crowd, his eyes burning: "You ask him how much he earns now, whether he earns enough. He earns just 2,000 rupees (Dh168) a month now. You ask him how he can survive on that." "Due to the dollar appreciation, increase in the cost of rough diamonds [imported], increase in the electricity bills and also the recent increase in labour charges, the business has been bad. However these troubling times are only for the small manufacturers," says Karamsinh Bhutia, a small unit owner in Trikamnagar. All the small manufacturers believe that if this continues, the diamond business is going to end up totally in the hands of the bigger factory owners. The small unit holders are slowly going out of the business because of the direct effects of the strikes and the inflation. But even in today's tough times, Jadakhada Road is still the place to be to make a deal. Small packages of diamonds are bought and sold everywhere on its packed side streets - by brokers strolling in on the pavements, squatting on their Bajaj scooters or sitting cross-legged in the street's open shopfronts, where "rough" uncut stones are weighed on simple scales. Brokers casually haul around wads of cash wrapped in newspaper and stuffed into plastic shopping bags. But the biggest transactions happen in the sellers' offices above the street. Vinod Mehta, a partner at Deepak Shah company, has all the basic tools of a diamond trader in his office - two eyepieces, two calculators, a felt viewing platform for the stones, and a board of clocks showing the times in "New York, Mumbai, Israel". Vinod has just returned from Antwerp, which he has been visiting since 1986. He is remarkably upbeat, given what has happened to his business. Traders complain that the price of rough stones has increased by around 20 per cent, while the price of polished has fallen 40 per cent, ruining the economics of the business. "Now America's sleeping and the diamond business is too," says Vinod. "Back in 1998, I could make money very easily, now it's very difficult." And business is going to get more difficult still, now that the traders have been forced to give concessions to the small manufacturers. But the handful of giant companies at the top of the industry are now getting the blame. "This is all because of the large manufacturers," argues Savji. "They intend to throw us out of business." Blue Star did not hike its wages last month, as its workers had already received a 10 per cent automatic hike at the start of the year. Arnav Mehta says Blue Star will not lay workers off. "It's company philosophy. The last thing we want to do is get rid of people," he says. "Because we do the big stones, the artisans in our factories are extremely, extremely skilled." Vashasiya Raiya, one of Blue Star's elite cutters, last year cut a stone worth more than 50 years of his wages - and that's wholesale. It was a flawless 6.2 carat stone with a wholesale value of around $500,000, and Vashasiya devoted one-and-a-half months to cutting it. He says that in the unlikely event that he spotted someone wearing it, he'd still recognise the stone. "I remember every facet on that stone," he says. "The parameters, the diameter, the symmetry: anyone would remember a diamond so big. I was dreaming about it every night." Even with today's market slump, Blue Star is still going for high-value stones. On the seventh floor of the planning office two of Blue Star's planners are working on a 70-carat monster of a diamond, a lumpen semi-translucent egg - it's the largest Blue Star has seen this month. A machine scans the contours of the stone, allowing the two planners to simulate different cuts, which are then valued based on the latest diamond prices in Mumbai. "The planning department is the brain of the factory," explains Anshul Mehta. Nothing, not even one-carat stones go to the cutters before the planners decide what should be done. In a recession, Arjav Mehta boasts, it is Blue Star's philosophy to keep on buying up rough diamonds - at the DTC in London, from Russians, or from auctions in Africa. "If the market goes down, we still try and source rough," Anshul says. "We acquire more rough, even though it's more expensive, and try and sell it at a better price." But he expects that Surat will see tougher and tougher times ahead. Workers' wage hikes, the unstable US economy and the fluctuating dollar are the most immediate concerns for small manufacturers. But in the long term, the drastic cut in the number of Indian companies eligible to buy diamonds from DTC will have a bigger effect. Losing this eligibility, known as "sightholder" status, is a catastrophe for any big diamond company. De Beers, which controls about 40 per cent of world diamond production, is reserving more and more of its rough gems for cutters in Botswana and South Africa. "It's going to affect us hugely," says Arjav, "If India goes from cutting 11 stones out of every 12 in the world to only eight or nine, that's a lot of people. "After the new sightholder bid there is going to be a huge overcapacity in production, which is going to mean companies will have to be let people go." Blue Star may not reduce its workforce in the present downturn, but it is already fairly lean after letting more than a third of its staff go when it moved into these premises last year, reducing the staff count from more than 2000 to 1,300. Most of the second floor of its 3,500-capacity facility now lies empty. But the industry elsewhere is visibly shrinking. Savji's workers, for one, may not have jobs for long. "I am now thinking of investing in the textile business, along with some partner," he admits. "I have already cut my business by half since Diwali [November]." Others are thinking along the same lines. Ranchod Narsinh, a manufacturer from Mahidharpura, has invested in a set of power looms for his children. "I don't want them to be in the diamond business," he explains. "There are fewer and fewer opportunities for growth." Nanu, another manufacturer, estimates that between 20 to 30 per cent of small manufacturers have already pulled out of the diamond business. Arjav believes that the number of people involved in diamonds in and around Surat has shrunk from about one million at its peak to below 800,000 people. But this has not prevented Surat from being one of India's emerging boomtowns. The town's gross domestic product (GDP) averaged 11.5 per cent between 2001-2002 and 2006-2007, making it India's fastest growing city. Yet despite growing opportunities in other industries, there is still a loyalty to diamonds. "We are very committed to this industry," says Anshul Mehta. "Both my father and his brothers believe that even though this business has cycles, it also has consistency: in the long run, you will make money." Even the brokers are sentimental. Kamlesh Kumar, on Jada Khadi Road, abruptly stops complaining when asked about switching professions. "The diamond business is beautiful," he says. "We love the diamond industry like we love our wives. We will never leave it." And for the cutters, the chances of advancement are far greater in diamonds than they would be in the textile industry, where wages are set at about 7,000 Indian rupees (Dh590) a month. Diamond cutters' monthly wages start at more like 5,000 rupees ($120). But a good cutter can easily double that. From small units such as Savji's there is always the chance of being picked to join an outfit like Blue Star. A skilled cutter such as Vashasiya Raiya, who is 35 years old with 19 years of experience, receives a salary of $750 a month. That is about the same as the starting salary for graduates joining one of India's IT outsourcing giants, and a very good wage for a manual worker. Anshul Mehta is confident that India's inflation is not going to price people such as Raiya out any time soon. "India still has one of the cheapest labour forces in the world, on the same par with China," he says. "But we've got something China doesn't have: the skill level. These people have been cutting stones for the last two generations. It is in their blood. Still today and still tomorrow, India will be cheaper. It used to be diamonds and textiles, now they're looking out to the rest of the country." Blue Star, being a top-end producer, relies on expertise it cannot risk losing. However, reaching the 3,500 total capacity of the facility looks a very distant prospect. Raiya, with 19 years of experience and natural talent, will survive any downturn. But Surat's diamond industry is sure to shed tens, if not hundreds or thousands of its 800,000-strong workforce by the beginning of next decade. Other cutters and street brokers will have to return to farming in their villages, move into textiles, or find work elsewhere. * The National
Diamond City starts to lose its sparkle
Surat is at the heart of the diamond trade, and as the industry endures hard times smaller players are hit hardest.
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