The ‘chitthi system’ (kind of an unofficial paper note) on which India’s and especially Surat’s diamond trade was founded upon, is now taking an exit, thanks to the many recent cases of defaults. Most of the traders have now agreed to do all their dealings through a properly endorsed ‘promissory note’ (a practice they call it here as ‘jhangad’) which would make the deal more official and professional.
The diamond sectors in Surat and Mumbai have evolved an ‘unwritten business code’ of their own since last six decades. Diamond business has been running on ‘mutual trust’ here. Diamond companies indulge in business worth millions on the basis of one’s market reputation and trust. There is no other guarantee needed here.
But the time has changed now. According to an estimate, the INR 90,000 crore-industry has lost about INR 8 to 10,000 crore in various default cases which has shaken the mutual trust prevailing since last six decades among the industry stakeholders. So the Surat Diamond Association (SDA) has recently made it obligatory for all diamond merchants and manufacturers here to do their diamond dealings through promissory note, which can be considered as a valid sales document.
Diamond markets in Surat’s Varachha and Mahidharpura areas together do a daily turnover of over INR 500 crore in rough and polished diamond trade. The promissory note is expected to protect the traders from fly-by-night operators. More than 50% of the stakeholders in Surat and Mumbai have accepted the new system and according to SDA sources, over the next one year, remaining traders would shift towards jhangad .
According to a recent paper study conducted by the Indian Institute of Management-Ahmedabad (IIM-A), while these (Surat and Mumbai based) firms are part of the so-called unorganized sector, they are, in fact, highly organized. In place of (formal) strategies and practices, they have developed and adopted a culture of working of their own, which involves a code of conduct and ethics.
The study further notes, “These firms have global reach. They acquire diamonds from global sources and supply finished diamonds to the global diamond industry. They have survived as a close-knit community even as they scale up and respond to global demand. As the volume of their business increases, they pass on business to other smaller firms within the same community.”
The president of SDA Mr. Dinesh Navadia says, “The chitthi system had been working on mutual trust. But now we are trying to raise awareness among traders to discard the old system and move towards a more formal way, which is through promissory notes. This would mean the details of the diamond viz. the colour, cut, clarity as well as the payment details would be printed on a piece of paper carrying a revenue stamp.”
The industry, which thrived on family and community relations, has now expanded beyond community boundaries, so the traditional methods should be replaced with new ones, feel traders. Every industry needs to do adaptations and changes as per the need of the hour for its expected growth. With the new adaptation (of adopting promissory note system), India’s diamond sector is expected to introduce more professionalism in the daily business as the age-old chitthi system may have become outdated in today’s business environment.
Postd by Suresh Chotai
