It's been 19 days since the floods receded in Pandol, but lateAugust, the situation still looks grim. Heaps of garbage dot thenarrow and still very marshy bylanes, and a strong but indistinctodour hangs thick in the air. The only people out in the streetscleaning the muck up seem to be Pandol's diamond entrepreneurs. Notsurprising. Pandol is one of Surat's biggest diamond hubs and itsindustrial belt, called Industrial Estate No. 1, has been the worstaffected. There are some 350 diamond units here, but more than aquarter of them have done no work since the place first got floodedon August 7. "To us, August-September is the busiest season everyyear, and that at present is looking like a lost opportunity," saysVijay Sangani, a manager at Pandol's Vitrag Diamonds.
Elsewhere in Surat, things are no better. With an annual turnoverof Rs 45,000 crore from diamonds, Surat is the heart of India'sdiamond industry, accounting for 90 per cent of the country's diamondbusiness. Significantly, of every Rs 100 worth of diamonds finished,Rs 90 is exported. There are about 4,000 diamond units in all,including those that cut, polish and finish diamonds, with thesmallest unit pulling in Rs 10 crore a year and the biggest, as muchas Rs 1,500 crore. Since the business is relatively low skilled andlabour intensive, margins are wafer thin at 3-5 per cent, and all theunits are in a constant battle to cut costs and maintain revenueswithout compromising on quality.
Driving through Surat, it is evident that the floods will take abig toll of the diamond units. Compared to the 1998 flooding of thecity (then described as the worst-ever in Surat's history), thisyear's inundated five times the area and lasted three times longer.Initial estimates put the losses at between Rs 3,000 crore and Rs5,000 crore (this does not include losses of the local textileindustry, the other big money-spinner for Surat). Babubhai B.Viradia, Secretary, Surat Diamond Association, gives the break up.Loss of production over 15 days: Rs 1,400 crore; loss from damagedmachinery: Rs 400 crore; and personal loss to workers from thingslike damaged homes, Rs 100 crore. But that still doesn't add up to Rs3,000 crore. So, why are diamond entrepreneurs like Viradia fearingthe worst? Because no one is really sure when Surat's cutting andpolishing tables will start whirring again.
Industry Of Immigrants
Most of the workers in Surat's diamond industry (includingskilled, semi-skilled and unskilled workers) are not from Surat, butcome from states such as Uttar Pradesh, Bihar and Rajasthan.Typically, seven out of every 10 workers at a diamond factory is animmigrant, and when the floods hit the city, most of them fled totheir homes. "The worrying part is that they are likely to get backonly after Diwali and that means we have in one stroke lost thebiggest season," points out Jayesh Patel, who owns M.V. Enterprise.His company has an export oriented unit (EOU) in Pandol that is allbut destroyed. "Out of a total workforce of 200, we are down to just30," laments Patel. Every diamond unit has a circular table that canaccommodate four workers at one time, but at Patel's Pandol unit,just three of 60 such machines are working. With great difficulty,Patel has managed to give his unit some semblance of normalcy byrigging up make-shift tube lights to allow a handful of workers toresume work. His biggest concern now is two-fold: How to getproduction fully back on track and how to manage costs, since notonly has his firm lost revenues, but it has had to continue payingworker salaries. In fact, that's a challenge that confronts everysingle unit in Surat today.
Factories that have been spared damage to their machinery, such asSurbhi Gems' elevated unit at Mini Bazaar district, have otherworries to grapple with. "At least 70 per cent of our staff has beenwith us for about six years and they are a very experienced lot. Ourfear is that more will go away," says Lalubhai Kunt of Surbhi, whichemploys about 1,000 workers. (That means even if Surbhi manages toget new workers, they may not deliver the same quality orproductivity.) The workers who stayed back did so not because theywanted to, but because they had no choice. "There is not much to doat home, although I have some land. Besides, (farming) is quiteunpredictable," says Kamlesh, who hails from Bihar and works atHarikrishna Gems.
What makes matters worse for the industry here is the fact thatmost of the units have not bothered to get an insurance cover. "Theproblem is with the trade itself, since it is not very transparent inits dealings," says a Surat-based senior insurance official. "Thereare insurance companies offering policies specifically for thediamond and jewellery business, but it is only the larger playersthat have opted for them," he adds. The local industry does have aninsurance system of its own, but it is meant for the workers and notthe businesses. Two years ago, the industry association launched ascheme that allowed a worker to get personal accident insurance of Rs1 lakh by paying a premium of Rs 225 per annum. However, says theassociation's Viradia, the response to the scheme has been poor. Outof Surat's total diamond workforce of 70,000, only 20,000 have signedup for the insurance scheme. Needless to say, had the city's diamondunits or their workers opted for proper insurance, the story todaywould have been very different.
As mentioned earlier, this is not the first time that Surat hasbeen hit with flash floods. Back in 1998, a similar flood ravaged thecity. In both instances, it wasn't just rains, but water releasedfrom the nearby Ukai dam that caused the flooding. According toestimates, this time around, up to 80 per cent of Surat remainedunder water (between two and 20-feet, depending on the location) forfive days. The state government has set up a one-member panel toprobe allegations of negligence by dam officials. The panel willsubmit its report by December 31, 2006. "The diamond industry here isnot a very educated community and owners of smaller units, forinstance, do not understand the benefits of things like insurance,"says Viradia, explaining why the city doesn't seem to have learntfrom the experience six years ago.
Industry at Risk
Surat's plight will inevitably tell on India's gems and jewelleryexports. India is the world's biggest processor of stones, cuttingand polishing 11 out of every 12 diamonds. Last year, the countryexported Rs 68,686- crore worth of gems and jewellery, accounting for15 per cent of total exports. Given that Surat accounts for 90 percent of the industry's output by value, exports will take a big knockthis year. According to the Mumbai-based Gem & Jewellery ExportPromotion Council (GJEPC), while there has been no loss of stocks intrade, the estimated production loss has amounted to $60 million orRs 282 crore. "The floods have disturbed the entire supply cycle ofdiamonds to the international markets and as clients do not carryhuge inventories, the total exports of gems and jewellery is likelyto receive a setback," said Bakul R. Mehta, Chairman, GJEPC, in astatement.
However, some of the Surat-based factory owners say that there isno danger of buyers moving to a different sourcing destination, sinceno other country (at least in small diamonds) is as competitive asIndia. "We have had long-standing relationships with our clients andwe have managed to extend deadlines," says Viradia. "They alsorealise that the city is going through a rough phase."
Meanwhile, the Surat diamond industry, through its association,has made a formal representation to the state government, and one ofthe demands is for soft loans for workers. "The workers are referredto as ratna kalakaar and they are the backbone of this industry," hesays. "We have also asked for help on replacing our machinery andsome concessions on the vat (value added tax) front, besidesdeferment of payments on our loans."
If Surat's diamond industry feels emboldened to ask for help, it'salso because it has often come to the community's aid in times ofcrisis. For example, after the 2001 earthquake in Gujarat, diamondfactory owners helped rebuild homes. But Chandrakant Sanghavi,President, Gujarat Hira Bourse, and Chairman, Indian DiamondInstitute, says that the floods have come at an inopportune time forthe diamond business. "The industry has already been in the midst ofa recession for about six months now, and the only thing that canhelp its cause is its own resilience," says Sanghavi.
With the people of Surat busy salvaging their homes, the start ofthe festive season looks bleak. Kiah Diamond Jewellery, located inupmarket Ghoddod Road, is among the city's largest retailers and,therefore, quick to feel the pinch. "Last August, we did a total saleof Rs 22 lakh and this August, we are at barely Rs 2 lakh," informsstore manager Dhirubhai Naik. "At any point in time, we have at least15 customers in the store, but today I would be lucky if more thanone customer walked in," he says. Indeed, during the 40 minutes thatthis reporter spent at the store, not a single customer walked in.
For a city that thrives on its "evening trade"-be it diamond,textiles or entertainment-the floods have delivered a huge blow."Surat has always bounced back from crisis and will do so this timeas well," says Patel. Those aren't just brave words. Rather, it is asimple statement of intention. At Rs 45,000 crore a year, the stakesare simply too high for Surat's diamond industry to sit around andmope.
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