Why Surat’s star has stopped shining9 min read . Updated: 27 Feb 2020, 10:47 PM IST
India’s diamond city is facing a slowdown of epic proportions that threatens to change its face
India’s diamond city is facing a slowdown of epic proportions that threatens to change its face
Surat: Late in the night of 20 February in Gujarat’s Surat—a five-hour drive from the Motera Stadium where, four days later, US President Donald Trump underscored India’s status as an economic giant in front of Prime Minister Narendra Modi— labour activist Jaysukh Gajera got a call from a diamond worker’s family.
Gajera is a frail person who heads Ratnkalakar Vikas Sangh, a federation of diamond labourers. Workers and their families often call him. And when they do, it was almost always to deliver bad news. He sped towards the house of Kanubhai.
Earlier in the evening, Kanubhai (bhai, meaning brother, is a common way of addressing people in the region) had returned from the diamond factory where he works, had a meal at home, went out for a stroll and consumed poison. As his end neared, he seemed to have had second thoughts. He called his home asking to be rescued. By the time the family could find him, he was dead. Kanubhai’s family told Gajera that he was upset about his income going south.
Gajera carries a self-made form to document such deaths— there have been many, you see. “They said he was depressed about his salary being reduced. There is no other breadwinner in that family. I noted down their details in the form and spoke to his factory owner to get some help," said Gajera, waiving the form documenting Kanubhai’s final journey in his office where hundreds of such forms are piled up. Last year, 10 workers killed themselves, he added.
But unknown to Gajera, on the same day, in another corner of the city, Surajbhai, a street trader in diamonds, committed suicide. Even Vijay, a distant relative who used to sit next to Suraj in Mahidharpura street, known for diamond trading, came to know the news only the next day. “His business was bad," said Vijay, declining to delve into much detail, except for adding, “Everybody is going through a tough time."
Surat is far removed from the globetrotting world of diamond traders like Nirav Modi and Mehul Choksi—who are now fugitives after being accused in a $2 billion financing fraud. For more than 50 years, life in this city has revolved around diamonds. And in a sustained slowdown, the business is in the rough. According to a report in The Times of India (TOI) in September 2019, some 40,000 workers were laid off in the preceding year, and 20% of small diamond units were shut and salaries were trimmed across the sector.
Running out of luck
They say Surat was a prosperous port city even a century ago—when Mumbai was just a fishing village. People in the city take immense pride in this heritage. The story goes that river Tapi, the banks on which the city is built, is a sister of Lord Shani, the master troublemaker in Indian mythology. Shani would go around the world making mischief, but wouldn’t touch his sister’s blessed city.
Now, this godly luck may be running out for Surat. The city is the biggest processing hub for diamonds in the world. According to estimates, nine out of 10 diamonds sold anywhere in the world would have passed the hands of a worker in Surat. Of the 4.5 million residents in the city—it is among the world’s fastest-growing 30 cities as per recent United Nations data—more than 800,000 people work in the diamond industry, as cutters or diamantaires, workers , wholesalers, traders, brokers, retailers, jewellery fabricators, according to The Diamond Trail by Shantanu Guha Ray.
But today, suicides and job losses reflect many trends of a slowdown— declining global sales; international trade wars which make imported diamonds from the US more expensive and less attractive in the biggest diamond market of Hong Kong; the impact of demonetization and the goods and services tax (GST); and more recently, the coronavirus outbreak.
As per official data, imports of rough diamonds fell by 6.29% to $20.3 billion between April 2019 and January 2020. Consequently, exports of polished diamonds declined by 1.45% to $25.11 billion in the same period.
For all its glory, Surat’s capital distribution is skewed. Some 500 companies do ₹100 crore or more worth of business annually, and have a full-fledged network to import and export gems. The rest—some 2,500 small and midsize diamond traders, 60,000 brokers and thousands of polishing workers—position themselves along the food chain to eke out a small margin in the journey of rough diamonds to polished stones as they travel through Surat.
Hundreds of people working in the small and midsize units, who could be seen sitting cross-legged on pavements as well as in office buildings in markets such as Mahidharpura, are arguably the most hit by the current slowdown. The traders frequent such street markets to sell rough diamonds. The brokers check these diamonds with their loupes (magnifying glass) and decide whether to buy them, based on a small commission.
The gems are then passed onto the workers, who work on the stones. Finally, the cut and polished diamonds are sent back to Mumbai, India’s only diamond trading hub.
Change is in the air. Suresh Patel, for instance, sold diamonds on the street for more than 20 years, but last year switched to selling tea to offices to make ends meet. “You and I would not have been able to leisurely stand in this street and talk like this before, there would be thousands between us, all focused on selling diamonds," he said, when we met at Mahidharpura. Anil Patel, another trader in the street, with more than 17 years of experience, agreed. “Business is down by 70%. I bought 10 packets of diamonds before, now only three," he said.
For sure, the diamond industry has seen several such shocks. The biggest in recent memory was the 2008 financial crisis when hundreds were rendered jobless. The current turmoil, to them, is almost a trip back to those days.
“We estimate that some 2,000 skilled workers have gone to countries like Russia, Dubai and even South Africa in search of jobs. Every year, 2,000-4,000 workers are reduced in the industry," said Gajera of Ratnkalakar Vikas Sangh. The suicides, he added, are often the frantic final step taken by such despondent people.
Dinesh Navadiya is president of the Surat Diamond Association and regional chairman of Gem and Jewellery Export Promotion Council. He says the current crisis started with the US-China trade war. “There has been a sustained 15-17% drop in demand. As dollar valuations went up, the Chinese started purchasing lesser gems to cut down their cost. So the circulation has been coming down slowly," said Navadiya.
The coronavirus outbreak has taken this to the next level. “This is almost fully an export-oriented market. Some 37% of exports go straight to Hong Kong, which was affected by a popular uprising for some time and is now completely shut because of the coronavirus," he said.
To this mix, add the negative impact from demonetization and GST. “All small-to-midsize businesses were working with cash, which got blocked during demonetization. With GST, the problem is in the 5% tax on job work. Those who don’t have factories and operate on their own on razor-thin margins, this has been the final straw," said Navadiya. Realizing the extent of the problem, the government has reduced GST to 1.25%. But an estimated ₹1,500-2,000 crore—crucial working capital for the industry—has already got sucked into the tax net.
But with the coronavirus outbreak, even the big guys in the businesses are worried. If it prolongs, even the banks in Surat will have a serious crisis at their hands. This is because banks extend credit for most exports from Surat, said a bank manager, requesting anonymity. “Banks will give me the money at a discounted bill so that one can purchase the raw materials to import again," he explained.
Rough diamond importers have upfront payments, running into millions of dollars. Banks charge an interest rate of 4-5% for this dollar-to-dollar payment, but on the condition that it will have to be returned within 90 days, said the manager. If not, the interest rates will go up and the credibility will go down.
“With the coronavirus, the whole payment circulation has come to a standstill and the banks are worried. Already, because of two people’s mistakes, banks have severely trimmed financing diamond units," added the banker, referring to Nirav Modi and Choksi.
Diamonds and rust
Diamond companies, along with textile firms, have given Surat most of its riches. There are shopping malls, well-paved roads and bridges, freshly-constructed apartment complexes, and a giant diamond bourse in the works. In the local yore, it is common to see someone pulling over his Ferrari near a roadside vendor to savour pav bhaji.
So when the business is dull, the contrast is hard to miss. And nowhere is that perhaps starker than at one of its most celebrated firms, Hari Krishna Exports Pvt. Ltd, which has a ₹6,000 crore turnover and employs 8,000 workers. Spread across 17 acres, the campus of Hari Krishna has three tall towers and an artificial lake. Loudspeakers in all corners play devotional hymns. But the most unique sight would be at the parking lot: the long line of cars that employees got as Diwali bonus.
Run by diamond baron Savji Dholakia, the firm made headlines several times by gifting workers bonuses in the form of cars such as Mercedes-Benz or Renault Kwids and costly flats. In 2018, Dholakia gave them to as many as 600 employees. In 2019 though, when asked by TOI whether the company would give Diwali bonus, he flatly ruled it out. “This recession is worse than the one we experienced in 2008. When the entire industry is in doldrums, how can we afford to offer gifts? We are more concerned about protecting the livelihood of diamond workers," said Dholakia.
Pintu Dholakia, CEO of Hari Krishna, said: “Since the last 11 years when I have come into this business, the industry has not grown in terms of dollar value or rupee value. If it was one lakh crore rupee business 11 years ago, today also it is that much. So if this is going to be the case going forward, you don’t expect more people joining in this industry because there’s no scope of growth."
“Only three major businesses are there in Surat—diamonds, textiles and real estate. That all has matured. In the coming years, there will be some other businesses that will have to come and give us growth as a city," he added.
At Hari Krishna, the change is visible. “We feel that diamond trade will have other substitute industries as well, like jewellery that will expand in India in a different way," he added.
Chirag Virani is already at it. An engineering and MBA graduate from Canada who heads his family’s midsize diamond firm Virani Gems in Surat, he is working on a startup that makes organic sanitary pads. “We might have to be ready for 10-25% slowdown in business," said Virani, adding that he plans to keep his inventory low and cut shifts to mitigate through the crisis.
“We have a different mentality," said Virani when asked about whether he worries about the future. “My dad’s uncle, my grandfather’s brother, came here as a polisher. They lived a very hard life. And to them, instead of farming in the hot sun, sitting in an office and cutting and polishing was always easy. And then slowly, with hard work and a little bit of luck, we are here now."
“We came here with nothing and we will find a way. Everything is a bonus in a way," added Virani.