The previously flourishing industry has declined by 50 percent over the last two to three months, officials said.

India's western state of Gujarat is the largest diamond polishing and cutting centre in the country with 80 percent of the country's diamond manufacturing concentrated here.

"A severe recession has set in in the diamond industry as there are no buyers," said Jaysukh Vekaria, president of the Gujarat Pradesh Congress Diamond Workers and Sales based in the state's commercial capital Ahmedabad.

"The United States has been the largest buyer of our diamonds, but in the last three months demand from the US has decreased drastically due to the war," he added.

The approximately 440-billion-rupee (nine-billion-dollar) industry was growing at about 25 percent every year but has now seen a sudden massive drop in orders for polished and cut diamonds from the United States.

Vekaria said there had been a decline in demand of around 50 percent, but at the same time producers of rough diamonds had put up their prices by 10 percent.

This has made Indian diamonds uncompetitive in the global market, he said.

Apart from the United States, exports to another important market for Indian diamond traders -- Hong Kong -- have declined because of fears over

India exports 80 billion rupees worth of diamonds to Hong Kong-based jewellers each year.

"Due to SARS, many jewellers are deserting the commercial island. This has led to a sharp plunge in the demand from Hong Kong for diamonds. We are also scared to go to island," Vekaria said.

The diamond industry in Gujarat employs over 2.5 million workers and about another ten million directly or indirectly work for the industry in the state.

"I have cut down my workforce by over 50 percent from 200 workers six months ago to 75 workers today. I was running 60 units some month back but only 20 of my units are operational now," said Dasrath Patel, a diamond manufacturer in Ahmedabad.

"Forty of my units are lying idle as polished and cut diamonds are piling up in my workshop with no buyers."

Surat Diamond Industries Association president Pravinbhai Nanavati echoed the worries but said with the end of the war, sales would rise again.

"With the Iraq war looking like it is drawing to a end, the diamond industry will be able revive in less than two months as buyers return back to the market.

"Earlier, it had seemed like it would be long-drawn war but that is not the case now," he said.

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