Dineshbhai Vayani, a small-time diamantaire and trader till a couple of months ago, now works in a textile machinery factory. Unable to afford rough diamonds as well as find buyers for his polished diamond, he had to shut down his small unit and switch job. Vayani, who still visits the streets of Mini Bazaar on Varachha Road in Surat - a hub for diamond polishers and traders, blames banks for not providing finance to small-timers like him.
Vayani is one of the many small and medium diamantaires and traders that form 60-65 per cent of the over Rs 70,000-crore diamond industry in Surat. Yet, it is this very segment of the industry which still seems to be suffering from the aftermath of the global recession.
With an ability to avail funds based on their export bill, a dozen of big diamond polishing and trading companies recently defaulted against loans worth over Rs 2,000 crore. While on the other hand, small and medium entrepreneurs in Surat continue to succumb to the rising rough prices due to lack of finance.
So much so that in the last three-four months, these diamantaires have no other option but to slow production. “We cannot close the business since most of us source rough diamonds from DTC and do not wish to lose our goodwill. And there will be overhead costs to bear,” says Kirti Shah, partner in KD Diamonds.
To add, they already have three-four months stock of rough diamonds to polish where they incur a monthly loss of four-five per cent against sale of polished diamonds. “The irony is that while big companies can avail loan based on their export bill and are still defaulting against it, the small and medium diamantaires who actually need funds to buy rough diamonds, especially in the current scenario, are unable to avail them. There are certain diamantaires and traders who have managed to fund their own rough diamond procurements, others have been forced to cut down on such sourcing,” says Rohit Mehta, director, Moments Creations and Jewellery India and former president of Surat Diamond Association (SDA).
“In order to lower risk as well as provide finance to needy firms, banks will have to broaden their risk base,” said an official of a Surat-based bank on condition of anonymity.
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Unlike some of the big companies which import rough diamonds and export them as polished, especially solitaire diamonds, several small and medium units buy rough diamonds locally from other big players and sell polished diamonds in local markets. However, the gap between rough and polished diamond prices increased to 40-50 per cent from 5-7 per cent couple of years ago.
According to Dinesh Navadia, SDA president, it is only small and medium diamantaires dealing in big solitaire diamonds who are facing the financial crunch. “As far as those dealing with small diamonds are concerned, they have been able to survive hand-to-mouth because of rising demand for small diamonds in the domestic market. It is, however, those dealing in solitaire that are unable to bear the rising losses due to rise in rough diamond prices,” says Navadia.
In terms of value, small diamonds form only 30 per cent of the Rs 70,000-crore industry. But apart from slowing their production, polishing activities or trading, these diamantaires are also playing the wait-and-watch game. “We are fulfilling commitments for rough diamonds that we have already bought. Meanwhile, we are also hoping that Diwali and Christmas season will push prices of polished diamonds up as well, thereby reducing our losses. The smaller players, however, have backed out of this and many have shut their units,” says Shah.
Till then, the 350,000-workers industry will continue to bear the losses, say players.