Stocks have piled up, payments from US-based jewellers and buyers were delayed and exports to most Arab countries have stalled for a fortnight.
To add to the woes, the Severe Acute Respiratory Syndrome epidemic has hit the diamond business as Hong Kong and Bangkok are important markets for exporters, accounting for the second highest business volume next to the United States.
Diamond merchants numbering more than 10,000 in Surat and adjoining areas and about 200 more in Ahmedabad were banking on a quick cease-fire in Iraq. If the war continues for another fortnight, units will have to ask employees not to come to work.
Exporters will wait till April 20 and then decide on whether employees would be asked to go on vacation till exports resumed.
"Since diamonds are high-value items, units have a holding capacity limitation and most units were holding ready diamonds for a fortnight now," said sources.
Regular buyers in the US were not ready to receive consignments. Due payments have been mostly delayed and if this continues, units have to down shutters.
"There is simply not enough money to continue production and pay lakhs of employees involved in cutting and polishing," said Pravin Nanavati, president of Surat Diamond Association.
Nearly 90 per cent of India's polished and ready diamonds were processed in Surat. At the end of this March, the sector registered turnover of Rs 32,000 crore (Rs 320 billion) which was expected to rise to Rs 40,000 crore (Rs 400 billion) in the current fiscal.
But this war has shattered dreams and SARS in Hong Kong and Bangkok has added to the anxiety, Nanavati told Business Standard on Monday.
Bulk buyers in the US have stopped buying and smaller buyers were expected to follow. The US bought 60 per cent of Surat's production last year. "The West Asia market is not responding too," said a top diamond merchant who owns four large units in Ahmedabad.
If the conflict continues, the production will have to be stopped since rough diamonds sent by other countries for cutting in India will stop coming while cut and polished diamonds will remain unsold.
"The units are seriously considering declaring a short vacation in the industry, if the situation continues to worsen," said Vallabhbhai Patel, president of Ahmedabad Diamond Association.
Gujarat has around 13,000 diamond cutting and polishing units with 10,000-odd in and around Surat. The employees, mostly from West Bengal, Orissa and Bihar, would bear the brunt of the closure.
"This morning, my employer asked us to be ready for closure of the unit for some time which means we may not get salary for the month. If units are closed down even for 15 days, we will be in difficulty," said Goutam Pal, a worker from Dumdum in West Bengal.
