John F. Clark 
On floor after floor of Dharmanandan Diamonds’ hovering gray headquarters in primary Surat, rows of employees are hunched in silent concentration as they manual tens of millions of bucks really worth of tiny gemstones via a punishing two-month process.
Motley batches of rough stones from Canada or Botswana are sifted by way of satisfactory and minutely examined before being transformed into perfect digital replicas, which can be manipulated by using Israeli three-D imaging software program to locate the maximum profitable way to slice each one. Having been cut with lasers at temperatures exceeding 2,000C, the diamonds are eventually buffed into their acquainted notable shape, held by hand to a sharpening disc that spins so quickly it seems immobile to the naked eye.
While India is in power to boost exports and manufacturing, its diamond industry should be a supply of pride and encouragement. According to Bain & Co, the consultancy, more than ninety in step with the scent of the arena’s diamonds used inside the international jewelry market by cost are cut and polished in India. The enormous bulk of that is inside the western town of Surat.
This year but, the industry hit the headlines for reasons much less savory.
On Valentine’s day — normally a glad time for the arena — information broke out of one of India’s largest frauds, allegedly perpetrated through possibly its most celebrated diamantaire, Nirav Modi. The scandal adds to several economic pressures already dealing with India’s diamond enterprise — even because it bets on a surge in domestic demand for its services. Now some observers point to a probable investment squeeze on the arena as banks grow extra careful approximately lending to smaller traders.
“Perhaps paradoxically, I actually have never surely worn jewelry,” Mr. Modi advised the Financial Times closing yr. Still, his elegant designs won him worldwide fame, have been regularly flaunted through celebrities, including Kate Winslet at the Oscars, and regarded at different excessive-profile activities. Mr. Modi embarked on a high-octane growth power, beginning stores on the luxurious actual estate from London’s Bond Street to Singapore’s Marina Bay Sands.
According to Punjab National Bank but, Mr. Modi was simultaneously involved in a fraud of epic proportions. It alleges that he and pals, performing with some PNB personnel, secured unauthorized bank ensures that have been used to secure credit scores from branches of different banks in remote places. The alleged fraud got here to mild, most effective after retiring the primary PNB reliable who’s accused of involvement.
Mr. Modi, who fled to London amid the allegations, has denied wrongdoing, but his glamorous stores at the moment are shut. Meanwhile, the shockwaves of his downfall have spread via an enterprise that celebrated him as a trailblazer.
In the wake of the scandal, banks rushed to make certain they were nicely covered in opposition to the threat of huge-scale fraud. “When this type of surprise takes place, people take a look at their very own house and ask: may want to this take place right here?” says Biju Patnaik, head of gemstones and jewelry banking at IndusInd Bank, certainly one of the most important financiers to the enterprise.
This was not the first case of its type. Five years earlier than, Winsome Diamonds and Jewellery defaulted on loans of close to $1bn, prompting a first-rate fraud investigation; this is continuing. But the exceptional scale of the brand new allegations has precipitated some inside the industry to fear a dangerous investment squeeze.
In the second one-quarter of this 12 months, superb financial institution credit score to the gemstones and jewelry region fell by way of 6. Three in keeping with cent from the preceding quarter, in keeping with Indian relevant bank records. “The fee of funding is actually going up,” says Madan Sabnavis, chief economist at Care, a rating enterprise.
The worst-affected corporations, he says, are the buyers and producers in the middle of the spectrum in phrases of length. Unlike the casual traders plying their exchange in Surat’s bustling diamond markets, they’re big sufficient to have grown reliant on financial institution credit score. Still, they lack the popularity and monetary relationships enjoyed via larger names, which includes Dharmanandan.
At the Indian jewelry zone’s annual jamboree in August, masses of merchants from the country and past descended on a sprawling Mumbai conference center. Their opulent stalls created a gaudy labyrinth of glowing gemstones.
The crowds covered an unheard-of turnout of bankers, says Colin Shah, vice-chairman of the Gems & Jewellery Export Promotion Council (GJEPC), the arena’s predominant change frame and organizer of the Mumbai occasion.
“Earlier, it became all on an Excel sheet,” he says. “Now they’re studying the industry — visiting the factories, looking on the balance sheets with a magnifying glass. I think in a long time it’ll be superb.
In the intervening time, he says, the funding squeeze is hurting an industry that had already confronted running capital problems because of behind schedule tax refunds after closing yr’s introduction of India’s new countrywide goods and offerings tax.
The GJEPC has answered with public exhortations for banks not to pull away from the industry. It is also promoting a new database of financial data and credit score histories geared toward giving banks greater self-belief in their clients from the arena.
IndusInd’s Mr. Patnaik warns that the outcomes of the bankers’ cold toes need to no longer be exaggerated. “We are a [banking] syndicate leader, and no participant has said he desires to exit,” he says. “There is a careful approach, but it’s honestly affecting the marginal gamers, those who have greater dangers related to their corporations.”
The investment squeeze is the most effective detail of the fallout from the February scandal. It turned into also a fierce burst of horrific publicity for a diamond enterprise attempting to trap Indian families far away from their traditional preference for 24-karat gold jewelry.
“At dinner parties at that point, if you stated you labored in the diamond enterprise, you bought a raised eyebrow,” says Sachin Jain, India head for Forevermark, the consumer emblem of diamond organization De Beers. But Mr. Jain nonetheless views the home marketplace as a potential supply of big boom for the enterprise. “The entire jewelry marketplace is set $35bn in India, out of which we suppose diamond is about 15 in keeping with cent, and slowly the pendulum is transferring closer to diamond jewelry,” he says.
This outlook is shared via agencies inclusive of Dharmanandan: domestic sales account for only a tenth of its business, but it expects this share to boom strongly as Indian jewelry income outpace the listless increase in Europe and North America.
As properly as reflecting growing disposable incomes, Mr. Jain says this indicates a trade inside the traditional perception of jewelry, with extra emphasis on its characteristic as an indulgence in place of investment. More clients now keep for jewelry alone or in couples, he says, whereas “in advance, the whole own family could come alongside.”
However, on a recent afternoon in Surat’s bustling outdoor jewelry marketplace, the mood became particularly downbeat. Perched on roadside benches or internal dimly lit rooms with flaking paint, tiny gems arrayed earlier than them on baize-lined trays, buyers complained of a pointy fall in earnings thus far this yr.
Largely, they said, this turned into a result of a production crunch by miners. This has despatched the price of imported tough diamonds surging. But in addition, they blamed an extra ominous lengthy-term threat to the enterprise: the developing reputation of lab-grown diamonds. The February scandal introduced to the pain about this fashion after allegations emerged that one of the conspirators had taken synthetic stones to his clients as herbal ones. These are available at a far lower price than the herbal range.
“People are afraid to shop for diamonds in case they turn out to be with artificial ones,” says Ramesh Ramani, a 62-12 months-old dealer who says his earnings have fallen about forty in line with cent within the past yr. “If it consists of on like this, I might think about going returned to farming.”
