For Kalpesh Patel, Diwali, the festival of lights celebrated across India, might well mark lights out for his eight-year-old diamond cutting and polishing unit.

The 35-year-old employs about 40 workers who transform rough diamonds into perfectly polished gems for exports at the small factory in Surat, a city located in the western Indian state of Gujarat.

His business has survived multiple speed bumps in recent years. But United States President Donald Trump’s mammoth 50 percent tariffs on imports from India might be the final nail in the coffin for his unit, part of an already struggling natural diamond industry, he said.

“We still have some orders for Diwali and will try to complete them,” he told Al Jazeera.

Diwali, arguably India’s single biggest festival, scheduled for late October this year, usually sees domestic sales of most goods soar. “But we might have to shut the business even before the festival, as exporters might cancel the orders due to high tariffs in the US,” Patesh said.

“It is becoming increasingly difficult to pay the salaries and maintain other expenses with falling orders.”

He is among the 20,000-odd small and medium traders in Surat, known as the “Diamond City of India”, which together cut and polish 14 out of every 15 natural diamonds produced globally.

The US is their single largest export market. According to the Gem and Jewellery Export Promotion Council (GJEPC), India’s apex body for the industry, the country exported cut and polished gems worth $4.8bn to the US in the 2024-25 financial year, which ended in March. That is more than one-third of India’s total exports of cut and polished diamonds, at $13.2bn over the same period.

Dimpal Shah, a Kolkata-based diamond exporter, told Al Jazeera that orders have already started getting cancelled. “Buyers in the US are refusing to offload the shipped products, citing high tariffs. This is the worst phase of my two-decade-old career in diamonds.”

US imposes penalty

A 25 percent reciprocal tariff on all Indian goods, which Trump announced on April 2, came into effect on August 7, after talks between the two countries failed to yield a trade deal by then. Negotiations are continuing.

Meanwhile, on August 6, Trump announced an additional 25 percent tariff, taking the total tariff rate to 50 percent. He termed the additional tariff that would come into effect from August 27 as a penalty for India’s continued buying of Russian oil, as the US president tries to push Moscow into accepting a ceasefire in Ukraine.

For the gems industry, which already faced a pre-existing 2.1 percent tariff, the effective tariff now amounts to 52.1 percent.

Ajay Srivastava, the founder of Global Research Trade Initiative (GTRI), a trade research group, termed the Trump government’s additional hike as an act of “hypocrisy”, citing how the US itself continues to trade with Russia, and how China – Russia’s biggest oil buyer – faces no similar penalty.

“Trump is targeting India out of frustration as it refused to toe the US line on the Russia-Ukraine conflict, and for its refusal to open its agriculture and dairy sector,” he added, referring to broader ongoing trade talks and differences over US demands for greater access to critical Indian economic sectors.

Yet, whatever the reasons for Trump’s tariffs, they are hurting a diamond industry already bleeding from multiple hits.

Diamond sector badly hit

More than 2 million people are employed in diamond polishing and cutting units in Surat, Ahmedabad and Rajkot cities in Gujarat — and many have already suffered salary cuts in recent years, first because of the COVID-19 pandemic, and then Russia’s full-scale invasion of Ukraine.

“The pandemic led to economic slowdown affecting the international markets in Hong Kong and China,” Ramesh Zilriya, the president of Gujarat’s Diamond Workers Union, told Al Jazeera. The “Western ban on rough diamond imports from Russia due to the Russia-Ukraine war and the G7 ban on Russia also affected our business”, he added.

Russia has historically been a major source of raw diamonds.

Zilriya claimed that 80 diamond workers have died by suicide over the past two years because of this economic crisis.

“The situation in the international market led to the wages of the workers getting halved to approximately 15,000-17,000 rupees ($194) per month, which made survival difficult in the face of rising inflation,” he said.

Once the Trump tariffs fully kick in, Zilriya fears that up to 200,000 people in Gujarat may lose their livelihoods.

Already, more than 120,000 former diamond sector workers have applied for benefits. A 13,500-rupee ($154) allowance per child, to support their families, was promised in May by the state government to those who have lost jobs due to the tumult in the sector in recent years.

But the tariffs, pandemic and war are not alone to blame for the crisis: Lab-grown diamonds are also slowly eating into the market of their natural counterparts.

“Unlike natural [diamonds], the lab-grown diamonds are not mined but manufactured in specialised laboratories and priced at just 10 percent of the natural ones. It is difficult even for a seasoned jeweller to identify the natural and lab-grown with a naked eye. The taste of consumers is now shifting to lab-grown [diamonds], as they are cheap,” said Salim Daginawala, the president of the Surat Jewellers Association.

Decline in exports

In the 2024-25 financial year, India imported rough diamonds worth $10.8bn, marking a 24.27 percent decline from the $14bn imported in 2023-24, as per the statistics by the GJEPC.

The exports of cut and polished natural diamonds similarly witnessed a 16.75 percent decline, with exports declining to $13.2bn in 2024-25 as compared with $16bn in the preceding year.

“This move [the tariffs] would have far-reaching repercussions on the Indian economy that might disrupt critical supply chains, stalling exports and threatening thousands of livelihoods. We hope to get a favourable reduction in tariffs; otherwise, it would be difficult to survive,” said Kirit Bhansali, the chairman of the GJEPC.

The tariffs could also hurt US jewellers, warned Rajesh Rokde, the chairman of the All India Gems and Jewellery Domestic Council (GJC), a national trade federation for the industry.

“The US has around 70,000 jewellers who would also face a crisis if the jewellery becomes expensive,” Rokde added.

A domestic solution?

Traders say that the need of the hour is to increase domestic demand for diamonds and diversify to new markets.

A stronger domestic market “would not only contribute to the local economy, but would also create jobs for several thousands of people”, said Radha Krishna Agrawal, the director of Narayan das Saraf Jewellers in Varanasi city, in the northern state of Uttar Pradesh.

The tariffs, he said, could prove a “blessing in disguise” if they end up reducing the dependence of India’s gems industry “on other countries”.

Bhansali said that the domestic gems and jewellery market was growing, and expected to reach $130bn in the next two years, up from $85bn at the moment. The industry is also looking for new markets, including Latin America and the Middle East.

Gold already offers an example of a strong domestic market, cushioning the impact of hits on exports, said Amit Korat, the president of the Surat Jewellery Manufacturers Association.

But for now, the diamond sector in India has no such shield. It needs to be saved, urgently, said Patel, the Surat business owner on the cusp of shutting down his polishing and cutting unit.

Without help, he said, “the business will lose its shine forever”.