In Western India, a once-thriving diamond polishing and cutting industry is in a slump as demand for the precious stones dries up amid the global economic downturn. One of the places the downturn is having an impact on is Surat city, a low-cost global hub for cutting and polishing small stones.

For decades, diamond merchants in Surat in western Gujarat state have imported rough stones, and exported them to the United States and Europe after they are cut and polished.

Offering the advantage of low cost craftsmanship, Surat's diamond units process eight out of ten small diamonds in the world.

But India's diamond center is now desolate. Merchants in the once busy trading city say they have transacted virtually no business since last Christmas as orders dry up from Western buyers, who bought nearly 90 percent of their stones.  

The president of the Surat Diamond Association, C.P. Vanani, says at least half the diamond units have shut down, while others are working below capacity. 

He says diamond processing is just one third of what it was last year. As a result many traders are stuck with stocks, and have suffered losses as prices of small stones have tumbled by nearly 30 percent since they bought them.

Those affected include people like Param Patel, who owns a diamond export firm, Evershine Diamonds. He says he has shut four of his six units and has asked 750 workers to leave.

Patel says there is no demand for small stones, most of which went to the United States. He says the worst affected are the traders who did not have much capital.

Even more badly affected is the huge labor force, for which diamond polishing had provided a steady livelihood.

Vanani says that nearly 50 percent of the work force has been laid off. Estimates of the number of diamond cutters and polishers in the city vary between 400,000 to 600,000.

He says only 200,000 workers are left in the city. The others have migrated back to their villages to work on the farms, or are trying to find work in small units outside Surat.

The industry has appealed to the government to extend interest free loans to diamond manufacturers to help revive the diamond business. Diamond exporters are hoping the government will consider its demand after national elections are over in mid-May.   

India exports cut and polished diamonds worth about $ 11 billion every year.