KRISHNAN: (sfx) Manish Soni, a diamond trader has been supervising the cutting and polishing of diamond stones for 20 years. It is a family business and his two brothers help in the trade. In his shop located at the famous Mahidharpura Hira Mandi or Diamond Market, there is much activity as merchants are busy wooing prospective customers. Business is brisk.

In the night, the market operates in grimy by-lanes.

Among the wide selection of diamonds on display in Mr Soni's shop are also diamonds from Zimbabwe often referred to as "Zimba diamonds".

To sell Zimba diamonds, merchants have to produce the mandatory Kimberley Process certificate for the roughs. But not many traders have them.

SONI: The Zimba rough cuts come to Surat. It is cheap. The diamonds from Antwerp or from other countries are expensive. But end product is really good. That's why people prefer Zimba diamonds.

KRISHNAN Just this year alone there have been two major seizures in Surat. In April, two businessmen were arrested with a consignment worth $2 million. Then this month two others including a Congo national were arrested. The authorities recovered rough diamonds worth $ 1 million.

These smuggled diamonds which manage to escape the police net are cut and polished, and then sold to respectable firms which go on to easing these illegal stones into the legitimate diamond supply chain.

Surat is the global hub of the diamond processing industry and at least 80 percent of the industry's annual revenue of the over US$ 14 billion comes from the nearly 4,500 units in the city. An estimated 1.5 million people are employed in the industry.

It comes as no surprise then why these arrests have worried key diamond manufacturers.

Hitesh Shah is the owner of Venus Jewels, counted among the top five in India.

SHAH: We very much believe in working in an ethical way and in the same we would like everybody in the industry, in India to follow the same. And though the proportion of these conflict diamonds compared with the total volume is low�but it actually hampers the image of the whole industry.

KRISHNAN Every night, sweatshops in this port town come alive with traders casually hawking these smuggled rough diamonds. Some traders say almost all stores have a small ante-room where home-trained workers cut and polish the stones in regular intervals.

KRISHNAN: Early this year Surat's joint police commissioner told some of the city's big diamond traders that it was imperative for them to demand a KP certificate because the business was growing in India at an annual rate of 25 per cent and it was important to maintain checks and balances.

Dinesh Navadiya, President of the Surat Diamond Association says that this disturbing trend could be a blow to Surat's image.

NAVADIYA: I completely oppose these conflict diamonds coming to India illegally. In the last five years, there have been 2 or 3 cases travelling illegally with these rough diamonds to India. And the Directorate of Revenue Intelligence has caught them. This is not good for India because 10 of the 14 diamonds in the world are polished here. Now people think blood diamonds are being polished here and that is not good.

KRISHNAN:Given the fierce competition overseas, a majority of Surat's diamond merchants are anxious to ensure that their credibility and image remain good. But they also know once a rough diamond is polished it is impossible to trace its place of origin.