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After Nightmare Surat Waking up to New Realities
After months of tottering and fumbling through the nightmare of gravest recession, Surat is waking up to new realities for making a fresh start for its vital second innings.
By: Alok Kala
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Apr 27 2009 5:08PM
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Reference: 3745  

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With booming business and ever widening horizons, India’s vibrant diamonds and jewellery sectors were virtually floating on the proverbial pink cloud. Then the global terrible meltdown hit them with a big bang shattering the dreary progress. After months of tottering and fumbling through the nightmare of gravest recession, Surat is waking up to new realities for making a fresh start for its vital second innings.

Surat during the severe recession was a tragic sight to behold. Getting so many alarming reports about its decline I proceeded there myself for a fact-finding visit.

Reaching there with apprehensions, I braced myself for a round of the once dynamic city. Going on a round of its main trading centres was essential to assess first-hand the magnitude of the damage inflicted by the global economic meltdown. Here is a first hand account of the vibrant precious city traumatized by an unprecedented economic slowdown.

Desolate City :
We kicked off our tour of Surat from Varachha, which gave me the first shock. This business centre which was always buzzing with activity was now almost deserted. There was no dearth of parking space as automobiles were conspicuous by their absence – there was only a small cluster of bikes in the parking area. The shopkeepers were sitting listlessly in their stores. When we entered Kamla Estate we heard the whirring of machines from one of the factories in the five storeyed building. On the first floor I met Anandbhai, Manager, Coral Diamonds. He confirmed that more than 50% of the machines were idle with only a few being operated by the workers. Manager Anand Bhai told us that “While 125 workers were busy earlier, only about 60 of them are working currently. After closure, the factory has resumed work on 1 January, 2009. We are processing whatever rough we have in stock, after which we propose to close down!”

When I asked one of the artisans about their plight, he complained bitterly that while they earned a wage of Rs. 6,000 per month earlier, they earned barely Rs. 3,000 per month now. He also disclosed that the diamond associations had failed to alleviate their misery. He estimated that diamond production had dwindled to just 20%!

The multi-storeyed building houses other factories too, but only two of them are functioning and that too for just a part of the day.

Dwindling Wages :
Another factory upstairs is working, but in a single shift. The manager, Shailesh Bhai, told us that “Out of a workers’ strength of 260, only about 150 are reporting for work now. Production has shrunk to about 30% of the original capacity . The workers who are processing small diamonds are getting just Rs. 3,000-Rs. 4,000 per month; those processing bigger sized goods are earning on an average Rs. 6,000 per month only, down from Rs. 10,000 to Rs. 12,000 previously”.

Recalling his years in the diamond trade, Shailesh Bhai mentioned that he had been in the diamond trade for the last 23 years, but had never suffered such a setback. Earlier smaller diamonds were not popular with consumers, while larger ones had a huge market. Whatever was the trend, the market generated business with generous employment possibilities. But now with the global recession, only those artisans live in Surat whose children are being educated in the city; the rest have returned to their villages. Those who are still working in Surat are processing diamonds from 1 ct. to 0.3 ct. while earlier they processed goods of 3 ct. upwards.

Since the market has bottomed out I asked the manager the reason for continuing with diamond processing. He replied candidly that “even if you sell off the rough you have in stock it is not likely to fetch its original cost. Hence we thought it better to keep some of our production moving but that yields only 15% to 20% production.”

Ban on Diamonds Imprudent :
I then called on Kirti Bhai Shah who manages the diamond factory of a well- known firm. He is also a corporator with the Municipal Corporation of Surat. He is convinced that “Banning rough diamond imports has harmed the diamond industry. Regaining our prestige will take a long time”. Estimating the decline in the industry, he disclosed that the industry previously employed about 7 lakh karigars, but with the economic downturn their strength has dwindled to 2 lakh only. At present, jewellers have stocks of polished goods as well as rough therefore the industry is working, but not for more than 15 days! The industry foresees no improvement in the market for the next year or year and a half.

The Blame Game !
It was widely expected that the government and sector managers would pool their resources and bail out the gems and jewellery industry from this severe recession, but strangely enough an anomalous situation prevails in which the concerned parties have been drawn into a blame-game! The state officialdom claims that the government has already done enough by way of exempting VAT and Entry Tax, and the chief minister, Narendrabhai Modi urging the Prime Minister, Dr. Manmohan Singh, to grant immediate relief. On the other hand, sector leaders claim that they had never let down the gems and jewellery sector and offered substantial relief during natural calamities like devastating earthquakes, unprecedented floods, etc. The industry’s leaders believe that they are still toiling hard to keep business running, but the Government is passing on the buck to the trade.

Business Nil !
Then we proceeded to the Mahidharpura area, Surat’s spot diamond trading centre. In the past, hundreds of Karigars and small traders converged on this centre daily for vending and exchange of goods. Most of the exchanged goods are traded here. But the usually crowded Mahidharpura area was nearly deserted at midday! Only a few persons were sitting around and chatting. I spoke to them to feel the pulse of their diamond trade now.

One of the traders there, Shashikant Bhai of Patan, was a regular daily trader at this popular centre. Expressing shock at the current slowdown he commented, “Such a downturn is unprecedented. This is the first time in 23 years that even Divali did not witness any auspicious muhurat”. Asked about his daily routine now, he replied dejectedly, “I leave home in the morning as usual with my phone, hang around here during the day, sipping tea at intervals and return home in the evening. I used to earn nearly Rs. 25,000 in the past, but now even daily expenses have to be met from my own pocket”.

Harsh Bhai who deals in fancy goods has been trading in Surat for the last 22 years, earning Rs. 20,000 to Rs. 25,000 per month on an average. But when the market declined by about 40% he found that he had no business left! “What do you expect in the future now?” I asked him. He replied thoughtfully. “Wait and watch till the next Divali. Then we will have to think about the future”.

Then we ascended the office staircase and met Mitul Doshi, a diamond broker. He is continuing his business which is down by 25%-30%. He estimated that polished goods are available at 30% less in the ‘white’ market. Colored goods are not down because they are in demand in India. Even if rates are somewhat down, quality has improved. He estimated that only 10% diamond manufacturing is going on currently. Trading is being done only to clear old stocks.

Influx of Zimbabwean Diamonds :
While I was there in this office, I came to know that of late Indian manufacturers have taken on diamond rough coming from Zimbabwe because it costs less in D E and F colors and is readily available. But these goods are hindering the movement of DTC goods. I also examined some of the Zimbabwean diamonds which were 30%-35% low in quality. Why do they cost less? I quizzed the vendors and was told that they are cheap because Zimbabwean goods are lackluster, the gemstones have a greenish hue, the melees are brown in color and they lack clarity.

I was also informed that while top diamond dealers do not patronize Zimbabwean diamonds, these goods have gained entry into the Indian market. As their certification by the labs is not different from that of Syndicate diamonds, Zimbabwean goods are moving well in India, but are ruining the sale of DTC goods.

The trader who disclosed the goings-on remarked that if you now wish to have a profitable business, you have to deal in Zimbabwean goods. When I asked him, “What should one do with the DTC goods?”, He smiled and quipped, “No problem ! Mix both the varieties and you have a profitable lot!” Zimbabwean rough which reached the Indian market around Divali ’08 enters the country via Dubai. Since its demand is increasing, it has become a little dearer recently.

Finally we meet Chetan Bhai a small trader who deals in manufactured goods. He lamented “the demand for manufactured goods has dried up. Rough is available at 25% to 30% lower than its previous price. Production of polished goods has shrunk to 10% only. If you have cash, goods worth Rs. 21,000 may be available at Rs. 16,000! Every dealer has stocks of processed goods. They are eager to avert losses. This is the worst decline I have seen during the last 15-20 years of business in Surat.”

The decline in business has been precipitous in Surat where the effects of the current global slowdown have been traumatic. The business environment will take a while to lift, till then all one can do is to fine-tune one’s business and be innovative and creative and ride out the current global recession with patience.

After my cross-section visit to various parts of Surat for eliciting precious information in depth and detail, I decided to meet some high-end diamantaires also to get their point of view about the recession turmoil. This proved unexpectedly rewarding as I could gather very interesting positive aspects.

One of the notables recalled rather dramatically – “Look here Alok ji, I have a couple of Mercedes luxury cars in my parking lot below, yet I am using an ordinary Honda automobile to move around in Surat daily. Why ? I do not want my workers to resent the proprietor flaunting luxury at a time when they are hard up without enough work !”

Another noted diamantaire, Aagam Sanghavi of Sanghavi Exports pointed out the rare silver lining of the dark meltdown cloud. He denied the defeatist view of the prevailing situation and pointed out that on the contrary this is the right time to earn because rough is available abundantly and cheap too ! If you can manufacture the right type of goods, you may be rewarded with 15 to 20 per cent more margin than before !

While the general sentiment is that of apprehending further closures and shrinkage of business, a jewellery manufacturer of Surat whom I met in mid-March revealed surprisingly that some of the jewellery manufacturers are planning expansion ! He explained that because of curtailment of polished diamonds production, certain varieties of polished goods are in short supply, hindering jewellery production. Therefore jewellery manufacturing factories are now planning to re-start their own diamond production.

The Tide is Turning :….

Straws in the wind indicate that the market is changing now with the diamond industry accepting the new realities.

Dealers, I have spoken to lately informed me that they have to enter the new cycle of manufacturing at the new pricings of rough, which is the only way for them to keep in the show. There are some hurdles in this - they need the banks to support them as before and also the prices of rough to be stable, not like the last week of March when they suddenly went up by 15%!

According to these manufacturers the profitability in the new production phase would be better than before and a healthier diamond industry may emerge in future. Yes the number of players would be much less and the volumes would be lower.

It has been 5 months after Diwali manufacturing in Surat is either closed 100% or going on only about 20% .

When I spoke to a jewellery manufacturer he said that they are facing the problem of sourcing loose diamonds for their jewellery.

As during the past 5 months the few needed qualities of diamonds are out of stock or scarcely available in the market.

The companies dealing in fancy colored diamonds are also facing problems in sourcing goods as the entire rough inflow has dwindled. Fancies which from only a small percentage of the entire lot are also in shortage.

Looking to all these factors we presume that the prices of polished would get strong in future and the industry would see some movement. However it would still take a long time to regain the hights of 2006-7.

To read the story in detail and to know what Diamantaire Seventi Shah, Venus Jewel has to say, please buy your copy now, call: + 91 22 23866641, Email: mumbai@diamondworld.net

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hitendra k bhagat
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