For the Indian diamond industry, the crash of 2008 was more benevolent than the coming diamond crash of 2012. Reason: In 2008, the business came to a virtual standstill as the diamantaires did not buy nor sell and that when the business gradually normalized in 2009, activity resumed and prices stabilized.

In the present scenario, the diamantriares are buying rough diamonds at higher rates and losing about 10-20 per cent on the polished they are selling every month. In the past one month, the prices of polished diamonds have come down by almost 10 per cent in Mumbai and Surat markets as the consumer spending on diamond studded jewellery across the world has decreased following an uncertain global economic outlook.

"There is no equilibrium in the rough and polished diamond prices as it was in 2009. Presently, the rough diamonds are over priced and the value of polished diamond is diminishing with each passing day. However, it is very difficult for the diamantaires, especially the small and medium players, to operate below the breakeven margin," a DTC sightholder said.

Throughout 2010, which was a profitable year for the diamond industry, both rough and polished prices rose more or less in tandem; there was a manageable gap in the pace of growth between rough and polished. However, many traders in Surat and Mumbai were willing to speculate and buy rough at high prices, assuming that polished would increased by the time their resultant output reached the markets.

But, the traders miscalculated in a big way. In 2011, the market went into a steep upward spiral price-wise as the rough prices had doubled since the third quarter of 2009, when rough and polished prices had been in equilibrium. Polished price growth, however, then lagged some 25 per cent behind the corresponding rough. Then came the third quarter 2011 crash, and most diamond companies literally saw the profits made earlier wiped out. Though producers like De Breers, Alrosa, BHP Billiton still made record profits, many of their clients in India lost money and were left with stocks that had lost, and still were losing, enormous value.

Diamond market analyst Aniruddha Lidbide said, "The polished diamond market has collapsed badly and there is no sign of recovery. The leading mining companies like Alrosa and De Beers should think in favour of diamantaires and reduce the rough diamond prices by another 7-10 per cent in order to bring the polished and rough diamond prices in equilibrium."