NEW DELHI, March 29, 2009 (AFP) - India's diamond industry has shed 50 percent of its labour force as export orders dry up with the global financial crisis crippling demand for precious stones, trade officials say.

Eight out of 10 of the world's diamonds are processed in the busy trading city of Surat where diamond cutters work round the clock sorting, cutting and polishing stones to meet export orders from Europe and the United States.

But the biggest global economic slump in decades has forced mass layoffs in Surat's multi-billion-dollar diamond trade that employed about a million workers directly or indirectly before the crisis hit.

"Diamonds aren't a necessity," said Rohit Mehta of the Surat Diamond Association, a body that oversees the diamond trade in this city in the western Indian state of Gujarat.

"They're a luxury and the first thing people stop buying when times get tough," Mehta added.

Some 500,000 workers in the trade have been laid off and half of the 5,000 processing units have shut down as demand has plunged amid a wider slump in India's exports, according to the Gujarat Hira Bourse, a diamond exchange.

Mehta, of the Surat Diamond Association, gave a similar estimate of the numbers laid off, adding that "another 50,000 skilled diamond cutters are expected to be laid off if we find no new markets to sell our diamonds."

"I was 14 when my father started teaching me how to hold a diamond and cut it in a way that it shines from all sides. All my life, I worked hard and mastered the art, said 45-year-old diamond cutter Ramveer Dharan.

"Now I clean a diamond merchant's car and ensure it shines from all sides too," Dharan told AFP by telephone.

Since 1960, the port city of Surat has been renowned as a low-cost hub for processing rough diamonds imported from African nations, Australia, Russia and more recently from Dubai.

The gems are turned into dazzling stones using imported laser machinery by migrant craftsmen often working in dim and shabby units in narrow back streets.

More than 90 percent of these diamonds are exported, while the rest are purchased by Indian jewellery retailers.

"Everything was perfect until September 2008" when the usual Christmas orders came in, said Param Patel of Evershine Diamonds, a Surat diamond export firm.

"People were buying and there was a steady flow of income but suddenly orders started declining and now they've vanished," he said.

In March, Patel was forced to shut down four of his six diamond processing units which employed 4,000 workers when exports were humming. He had to ask many of his craftsmen and 750 of his labourers to leave.

"The diamond business runs on trust," said Patel. "Our employees are like our family members. It's painful to ask them to go."

Many of the unemployed workers are heading back to their villages -- some say they have received help from their employers to do so.

But others have stayed in the city to work as household servants or tea stall vendors to support their families.

The Surat Diamond Workers' Association, which claims 100,000 members, has asked the government for assistance.

"With elections round the corner, politicians come to meet us but no one promises us employment and money," said association secretary Ramnik Santosh.

India goes to the polls in general elections that kick off in April.

"The diamond merchants never gave us a fixed salary, job security or insurance," Santosh said. "In good times they paid us and now in tough times they're throwing us out." by Rupam Jain Nair