Every morning, one thousand rough diamonds sent from Africa land on Keval Virani’s desk. He takes a quick look at the stones, holding them by the handful to a desk lamp.
“Most people see something like this, and they think of Antwerp or Tel Aviv,” says Mr Virani, director of Karp, one of Surat’s largest diamond cutting and polishing companies. “They’ve never been to Surat.”
About 80 per cent of the world’s diamonds are cut and polished in the Gujarati city on the country’s west coast.
With its smokestacks, slums and 2m migrant labourers, it is an unlikely place for one of the most globalised parts of the Indian economy.
It has battled a series of exceptional natural disasters: an outbreak of pneumonic plague in 1994 and one of the region’s worst floods in 2006.
About 250km north of Mumbai, it was the Dutch East India Company’s first Indian port in 1607, and has since swung between exuberant growth and near-destitution.
Its most recent growth spurt, which started in the mid-1970s, put Surat on the map as a hub of India’s manufacturing industry. It quickly became one of the country’s largest pools of unorganised, cheap labour and a welcome alternative for businesses tired of wrestling with Mumbai’s powerful unions.
Its slums were razed and rebuilt. Its 750,000 looms operated almost 24 hours a day, producing a third of the country’s textiles. Diamond polishing outfits thrived, from Karp’s towering headquarters to dank basements, where less valuable stones were cut.
By 2007-2008, diamond exports had risen to $14bn, with most operations carried out in Surat. The city’s synthetic fabric sector grew to be worth $8.7bn, making it the capital of India's growing trade in synthetic textiles. Surat was named the country’s fastest-growing city in 2007, with an annual gross domestic product growth rate of 11.5 per cent.
Growth was rewarded by the government: the construction of a nearly completed cargo airport, and the Reserve Bank of India's announcement that it would allow advance payment for rough diamonds without any bank guarantee from nine mining companies.
“It's hard to believe just how much, and how quickly, this city has grown,” says Sevanti Shah, chief executive of Venus Jewels, one of Surat’s best-known diamond polishing companies.
But last year’s financial crisis threatened to stall the city’s ascent.
Unlike places such as Bangalore, where service industries have been the engine of growth, the highly cyclical – and less recession-proof – manufacturing industry is the backbone of the economy.
At the end of 2008, the diamond industry was operating at about a third of capacity. It shed thousands of jobs. A string of diamond traders committed suicide, dominating the headlines of local newspapers.
“Outsiders thought we were finished,” says Rohit Mehta, the president of the Surat Diamond Association. “They told us we were too dependent on the west as an export market.” Industry leaders took a controversial decision to stem the supply of rough diamonds and avoid flooding the production pipeline. Thousands of domestic migrants returned to their rural homes.
But in the year since the worst of the economic crisis, Surat has bounced back in a recovery led by national consumers. Though the industry is still about 20 per cent off its pre-recession peak, domestic consumption of diamonds nearly doubled last year, bringing in a total of $5bn, according to a number of industry leaders.
Vasant Mehta, chairman of India’s Gem & Jewellery Export Promotion Council, predicts another significant increase in domestic consumption in the coming year.
For the first time, Indian diamond polishers are hitching their fate to home consumers. The trend is noticeable in Surat, where glitzy stores sell diamond jewellery on bayside avenues.
“I don’t know where we would have been without domestic consumption last year,” says Mr Shah.
Some of Surat’s industry leaders have drastically shifted focus, targeting emerging markets.
Keval Virani of Karp says that his company, a sightholder – an authorised bulk purchaser of rough diamonds – of De Beers’ Diamond Trading Company, has shut down operations in the US entirely, to focus greater attention on China and India.
“We’re seeing wealthier Indian consumers, and that helps buoy sales. But it’s also a matter of changing tastes,” Mr Virani says. “This generation grew up watching diamond advertisements. Their parents wanted gold necklaces. They want diamonds.”
Domestic demand has also sustained the textile industry. In spite of the economic downturn, many of Surat’s largest textile manufacturers reported growth of about 7 per cent.
Like Mr Virani, Surat’s textile manufacturers point to the recession as a lesson in the importance of the country’s strong domestic market.
“Why bank on foreign consumers, when we have so many people here who are hungry to buy?” says Mahendra Kajiwalla, a local owner of textile mills and retail outlets.