Amreli, Gujarat: Raghavbhai Chengalia, 55, tiptoed barefoot on the dirt road of his farm to avoid the brown mounds of cattle dung, plucking his rolled-up gray pants even higher. Farm work is exhausting, he says, trying to hoist a bundle of cotton onto a cart. He had stopped working on the farm two decades ago when he became a diamond polisher in the town of Amreli.

Losing shine? A diamond industry worker in Jasdan, Gujarat. Amit Dave / Mint

The diamond industry in Gujarat, where about 90% of the world’s diamonds are cut, polished and exported to buyers mostly in the US and Europe, is hurting from the global recession that has caused large-scale layoffs and damaged the economy of the state’s diamond processing centres. The government does not maintain employment records for the industry and it was not possible to ascertain the precise number of people thrown out of work.

India’s diamond exports were valued at Rs82,000 crore in the last fiscal. The Gems and Jewellery Export Promotion Council has reported a 31.62% decline in diamond exports since November 2007. “People have lost their jobs in the US. You can be sure that jewellery is not on the top of their mind right now," says Vivek Mehta, a diamond expert at Suhashish Diamonds, a trading company with sales of Rs291 crore for the quarter ended June and operations in India, the US, Hong Kong and Botswana.

US retailers J.C. Penney Corp., Inc., Macy’s, Inc. and Bloomingdale’s, Inc. and, Inc. are offering between 30% and 75% discounts on diamonds and jewellery in a bid to attract consumers as rising joblessness deters shoppers.

However, even if these steep discounts do not drive sales, retailers in the US are unlikely to suffer because Indian exporters are paid only after the diamonds are sold, says Pravin Shah, secretary of the Mumbai Diamond Merchants Association. “So, if the retailers cannot sell the diamonds, they will simply return them to us and refuse to pay," Shah says.

Which is why diamond exporters in India have been watching Christmas and post-Christmas sales closely. “We will get the results early next month... Only then will we know what is really going on in the international market," says Mehta.

The downturn is, meantime, sending convulsions through manufacturing units in rural Gujarat where these diamonds are actually cut and transformed from rough stones into glittering pieces of jewellery for display in showrooms in wealthy cities of the US and Europe, says Lalit Thummar, president of the Amreli Diamond Association, who is also pursuing a postgraduate degree on the social aspects of Amreli’s diamond industry.

“Manufacturing units like ours work for export houses of Mumbai and Surat," says Dharmeshbhai Karamchibhai Chayani, who runs a small sweatshop operation of diamond cutters in Jasdan, a large village built around the diamond industry. “They send us the stones they import, we employ labourers here to polish and cut those stones and send them back to merchants who export them to countries like Belgium, America, Japan and Hong Kong. We don’t make any money. We are only paid for the work and we pay our labourers accordingly."

So, if the trading houses in the cities stop sending raw diamonds to manufacturing units, they will have to close down and lay off the labourers they no longer need. “Even as we speak, I know that if a new batch of raw diamonds does not arrive by this evening, I will have to close," says Chayani. The diamonds did not arrive and that evening, like so many others, he too sent his workers home.

Jasdan houses 108 diamond manufacturing units, including Asia’s largest diamond factory, Karp Diamonds Ltd, and offers employment to about 15,000 young men and women. These days, it is desolate.

Leaning over his tea stall to look down to what used to be a particularly busy alley, Nathubhai Ghelabhai Chaitaliya says, “You have just driven a car on this road. If you came here two months ago at this time, it would be so crowded that, forget driving a car, you would not even be able to walk." He used to sell more than 100 litres of tea every day, supplying the sugary, brown liquid to bosses, workers and visitors in these units. “I used to buy 50 litres of milk a day to make that tea. Now, even 10 litres is too much."

Chaitaliya says he has a family of 35, including four children, and owns two dozen goats. That afternoon, his father had taken the goats to graze, and his wife, brother and sister-in-law had set out to find work in fields of farmers. His mud and straw home had a naked, fly-ridden baby with an engorged stomach sitting under a cot and his elderly mother peering out from behind thick black glasses. Three goats wandered about in the mud courtyard.

“We feed our children as best as we can," his mother says, scooping the baby to her waist. “Some days we go hungry. But as the days go by, it is becoming difficult. We don’t even have any land to grow something. How many days can we starve?" she demands. The listless baby in her arms continues to look hungry.

“They decide our fate in Mumbai and Surat. They decide to stop sending diamonds and we begin to starve," says Chaitaliya.

On Raghavbhai Chengalia’s farm, the unemployment is about to be passed on.

Shyamjibhai Chengalia, who used to manage the farm for the family before his brother lost his job and returned to work on the fields, says he will have to cut his costs now. He supervises the family of farm hands as they pack cotton into bundles and shakes his head. “I had hired them six months ago to help me on the farm. Now with Raghavbhai losing his job, we cannot afford them any more. We will send them back to their village next month," he says. “You don’t understand that when unemployment comes to diamond factories, it comes to these farms, too. I don’t know how this family will survive when we tell them to go."

Sales slump

In Jasdan, barber shops, television and mobile retailers and clothiers are all reporting a drastic fall in sales. “Until two months ago, I used to sell 100 mobiles a month. Now, it is down to 10 mobiles," says Bipin Karamsudhbhai Patel, who owns Meera Music, a mobile and music store on the main thoroughfare of Jasdan.

Auto-rickshaw drivers, who used to ferry labourers from their villages around Jasdan to and from the city for Rs50 a day, find they are no longer needed. “I have no work," says Jaghabhai, a rickshaw driver who uses just one name. “Right now, my family is surviving by borrowing from relatives." But even the lending may stop soon, says Mukesh Patel, a municipal corporator of Jasdan who also runs a cable television business. “If this slowdown goes on for another month, the relatives are going to stop lending. I don’t know what they will do then."

In some parts, some young boys, newly out of work, have resorted to stealing. In mid-November, the Amreli police arrested Kiran Kheni, 24, for stealing 21 motorbikes. Last week, the Bhavnagar police reported the arrest of Bharat Patel, who allegedly stole diamonds worth Rs9 lakh from the factory where he worked. Neither had a previous criminal record.

Some others don’t know how to fight back. In the past fortnight, five diamond merchants committed suicide in Rajkot, Amreli, Surat and Ahmedabad.

“The people were completely unprepared for the downturn. “Everything was going so well. Everyone was talking about Gujarat’s wealth, our development. We have had good rain, good crops. Most of us do not understand how it could change so quickly?" says Patel. People had just begun to feel comfortable that they had made it to the middle class, when the October crash came, Patel says. Suddenly, “it has become a real possibility that they may become poor again." The possibility of homes that had made it to the middle-class slipping back into poverty is frightening according to Thummar, the president of the Amreli Diamond Association. “The government has to bail this industry out. It has to," he says.

Last week, the state labour department issued notices to diamond unit owners and demanded that they reopen their factories, if only for a few hours everyday. In Jasdan, large units are already trying to offer this sort of partial employment. “Some of us are trying to keep the factory running in the interest of our employees," says Satishbhai Chunelia, general manager of KGK Diamond Company in Jasdan that employs about 1,000 people. “Instead of working the regular 12 hours, we have retained about 500 people to work for about five hours a day. We want to try and keep as many people in jobs as possible."

Chief minister Narendra Modi says there is little else that the state can do. “The diamond industry is controlled by the Central government, so what we can do is limited. We have already removed sales tax on the industry. It is environmentally friendly and does not need a lot of capital investment, so we are encouraging it in every way we can," Modi says.

Gujarat industries minister Saurabh Patel has asked Union minister of commerce Kamal Nath to extend relief to Gujarat’s diamond industry and demanded a liberal credit policy from the Reserve Bank of India and financial institutions for the sector. But, as the state and Union governments grapple with the crisis, the diamond trade’s short-term prospects may well hinge on the answer to one question: Will the post-Christmas sales at American retail chains succeed in attracting consumers?