The Indian diamond polishing and cutting industry—the largest in the world—is rapidly losing its lustre.

More than 80% of the world’s diamonds are polished in India and prime minister Narendra Modi’s demonetisation is hurting this industry, which deals mostly in cash. Modi’s decision to invalidate Rs500 and Rs1,000 currency notes has forced businesses to stall operations in the diamond hubs of Surat and Saurashtra, both in Gujarat. The industry in Surat is estimated to be worth Rs90,000 crore ($13.2 billion) and employs over two million people.

These challenges come at a time when the diamond industry in Asia’s third-largest economy is already struggling because global demand for the precious gemstone has been falling swiftly. Much of this is because the economic turmoil in China—the world’s second-largest consumer of diamonds—has resulted in low demand for diamond jewellery. More than 5,000 jobs were lost in Surat in 2015 alone, and more than six major diamond companies had to be shut down because of slow demand, Reuters reported last year. Apart from lacklustre demand, prices of diamonds have been dropping steadily since 2011.

Losing their sparkle

In India, due to a severe cash crunch, diamond traders have said that payments from clients have been delayed and it isn’t possible to pay salaries. “The export houses may still be better off as they have US dollars with them, but the players who operate in the local market have no option at the moment. For the next two to three months, we do not see any payments happening,” Kirti Shah, a Surat-based diamond trader and polisher, told the Business Standard newspaper on Nov. 11.

Most of the diamond business in Surat is done in an informal manner. There’s a huge amount of trust involved and deals don’t have formal receipts. “Diamonds are a valuable item, and payments are usually in the excess of Rs5 lakh or so. Most payments are in the range of Rs25-50 lakh for consignments,” Shah said.

In the Saurashtra district, where diamond cutters and polishers regularly engage in farm work during the day, the daily earning is in cash. Business units, which have a high labour cost, haven’t been able to pay workers since Modi announced demonetisation, the Times of India newspaper reported.

Meanwhile, the overall demand for diamond jewellery is expected to slow down this year, a report released (pdf) by Bain & Co on Dec. 05 said. In India, too, according to Bain, the government’s anti-tax evasion initiatives could dampen demand.