A clear-cut shift to cashless modes in diamond industry

Cash appears to have lost its sparkle in the diamond cutting and polishing industry, breaking a decades-old practice, following the demonetisation drive initiated by the Narendra Modi government in November.

The transition to cashless modes of settling transactions is seen as a landmark development for Surat’s ₹90,000-crore diamond industry.

In the five months since the dramatic November 8, 2016 announcement of demonetisation, nearly 80 per cent of the financial transactions by big and small unit owners have gone from all-cash to cashless, primarily by cheque or electronic transfer.

Brijesh Dhaduk, who works at a diamond trading unit in Mahidharpura diamond market in Surat, says that for him and his colleagues, life has changed dramatically for the better in these few months.

“Earlier it was all cash, be it payment to clients or payout for workers. Now, we get our salaries directly in our accounts. Those who didn’t have accounts were assisted to open one,” said Dhaduk. Started in the early 1900s as an unorganised household business, the diamond cutting and polishing activity flourished around the early 1970s in Surat. The export of diamonds attracted other players, and Surat became a global hub for diamond manufacturing.

However, given the earlier emphasis on cash dealings, the diamond industry became a means for illegal money laundering through ‘hawala’ channels.

Not all diamonds are cut and polished in Surat. “Some are outsourced to smaller centres in rural areas. In many places, the payment for this outsourced work is now being made by cheque,” said Dinesh Navadia, President, Surat Diamond Association (SDA).

There are still some centres that hold out for cash-only transactions, but about 80 per cent of the transactions are now cashless, he added.

Surat’s diamond industry employs nearly five lakh people, and an equal number of people are employed in smaller centres such as Ahmedabad, Palanpur, Bhavnagar and Amreli for diamond cutting and polishing.

To facilitate the transition towards cashlessness, the Gem Jeweller Export Promotion Council (GJEPC) appointed chartered accountants and financial consultants to assist small unit owners in rural and semi-urban areas of Gujarat, Rajasthan and Maharashtra to register themselves as companies and open bank accounts.

“We conducted a major awareness drive in the pockets where diamond cutting and polishing is done,” said Ashok Gajera, chairperson, Western Region-GJEPC.

“They were provided assistance in registering their company and operating accounts. We also addressed their concerns about taxes. Now, nearly 90 per cent of such small units have adopted non-cash systems,” said Gajera.

The small units account for 15-20 per cent of the overall volumes of India’s diamond manufacturing, and employ nearly 35 per cent of the overall workforce in the industry.

In the immediate aftermath of the demonetisation of ₹1,000 and ₹500 notes, these small unit owners faced a severe crisis of payments and receipts.

“The entire cycle of payments was thrown out of gear,” added Gajera. \

“But gradually, everybody realised the need to go cashless, and we now have workers and clients dealing only in cheques,” he noted.

In India, of the imported diamonds, only 7-8 per cent is consumed domestically; the rest is exported after cutting and polishing. India manufactures seven out of every 10 polished diamonds in the world.

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