Squatting on a broken pavement in a quiet corner of this bazaar, Ghanshyam Patel is busy sorting out dozens of polished diamonds with low grades and clarity. The man is surrounded by rows of gem traders, who trickle rough diamonds in an old brass scale. His customers are not reputable firms but diamond cutters and polishers, who exchange these tiny gems for a few thousand rupees - it is known as badlo (exchange) - with the high-clarity diamonds stolen from the factories, where they work.

Welcome to Jairam Mora Ni Wadi, an unofficial bazaar - there are two official bazaars at Mahidharpura and Varachha for diamond trading - on Katargam main road, which is synonymous with the flourishing stolen diamond trade in the Rs 45,000 crore diamond industry in Surat. This market, say experts, has a turnover of Rs 500 - 600 crore per annum (1% of the total exports from Surat).

Badlo is an illegal practice existing in the industry for many years. Many diamond polishers employed with unorganised units change the diamonds of perfect clarity with the low-grade diamonds. The worst hit are small and medium-sized cutting and polishing units. “Look at this diamond,” says Patel pointing at the low-clarity diamond, “if five to six such pieces are kept in a lot of 200 to 300 high-quality diamonds, nobody can trace them out.”
“There are many loopholes in the system. As a result, such illegal practices like badlo are still prevalent in the industry,” says K K Sharma, executive director of the Indian Diamond Institute (IDI).

Chandrakant Sanghvi, regional chairman of GJEPC, said, “those who do business systematically and invest in vigilance have less chances of being cheated by the workers.” A large number of diamond merchants are now waking up to the reality that they need to invest in information and technology and vigilance to curb such practices.

Mr Sharma said it does not ultimately affect the exports of polished diamonds as ultimately good quality diamonds are sold to reputed firms for export. There have been many cases in the past where factory owners have been charged for brutally beating the workers caught with the stolen diamonds.

“Workers do it because of the low labour costs. If we want to curb such practices, we will have to improve their salaries,” said a leading diamond exporter.