India’s diamond industry is highly complex with thousands of small, unregistered players concentrated in the cutting and polishing sector. A recent academic paper by Indu Rao states that, "In the absence of well-defined strategy, structure and processes in informal firms, it is the organizational culture that governs business practices." Rao says that in India, this informal "culture" is structured as a "clan" with an entrepreneurial leader: it has its own code of ethics, relies on mutual trust and honor, and gives a sense of belonging to a community. And it has proven highly effective, as the country is now the leading global diamond manufacturer by a wide margin - which is remarkable considering that of India's 2 million diamond workers, "more than 90% have not had formal school education." As Sohini Das concludes for Business Standard, "Formal businesses could learn a lesson from the diamantaires of Surat who run their businesses on a 'culture of trust'." But these lessons are not as unequivocal as she suggests.
Informality heightens risk factors
For as Rao's paper also points out, "in the broader context of the Indian diamond industry, there is a lack of formal systems like: documentation of the diamond packets exchanged or sub-contracted; documentation of the financial transactions between parties in the industry; or documentation of employee details or number of units worked on, etc." This informality raises obvious questions considering the fact that Surat is gearing up to house a world-class diamond bourse that will include a trading facility, and will be expected to uphold global standards for transparency. And as the Responsible Jewelery Council points out, it is precisely "due to the informal and unorganized nature of the industry" in India that diamond workers face "major social risks", including the widely documented use of child labor in India's diamond industry. In this light, there is something to be said for a bit more formality.