Gita Piramal on how Bharat and Vijay Shah became among the biggest diamond traders in the world.

Palanpur, a parched, dusty village founded in 746, lies on the border between Gujarat and Rajasthan. Traditionally, the Jains of Palanpur -- whose surnames seem to start and end with Mehta with a handful of Shahs thrown in for good measure -- served as accountants and administrators to the nawabs of the village. As it developed into a diamond-trading centre, the experienced money-managers seized control of the lucrative business. In the '80s a combination of luck and hard work enabled the tiny community to snatch a significant portion of the global diamond trade from a group of powerful Hasidic Jews.

'It all started about twenty-five years ago,' recalls Bharat Shah. 'We went to the bottom end of the market, buying and cutting diamonds which the Jews had rejected.' Israeli and Belgium cutters sneered at the thought of carving stones under ten points or one-tenth of a carat (the Koh-I-noor, incidentally is 109 carats), but Indians were not so fussy. Purchasing modest quantities of small industrial quality roughs, Bharat and other Palanpuris handed them over to the master craftsmen of their village who turned them into sparkling gems, some so small that few can handle them without a tweezer.

In one short decade, merchants like Bharat and Vijay, college dropouts, became the world's carat czars, founding and heading India's largest private empire, a Rs 35 billion conglomerate known as B Vijaykumar (in India) and Vijaydimon (in Belgium), with interests in diamonds, construction and films. They have cutting and polishing factories in Bangkok, Antwerp, Tel Aviv, Bombay, Surat and Palanpur, employing over 22,000 workers. The head office is in Bombay, under Bharat, while the Antwerp office is looked after by Vijay.

Shah with Rani Mukherji, Om Puri and Kamal Haasan

Nothing in Bharat's Bombay office suggests this accomplishment. The building itself, Mehta Bhavan, at Charni Road, is dingy and dusty. B Vijaykumar owns three floors, or roughly half the nondescript building. Bharat's office is on the sixth floor, small but bright and sunny, with a well-used feel to it. The scarred, solid and workmanlike wooden table behind which Bharat sits (and Vijay, when in town), is littered with slips of paper and packets of diamonds. Three phones ring continuously, and staff saunter in and out without knocking. Unlike the offices of other Bombay diamond merchants, there are no video cameras or armed guards, nor heavily barred doors with peepholes.

According to Francois Van Looveren, a broker with Bonas-Couzyn, a large brokering firm, 'to be a successful diamantaire, you need to be intelligent -- that goes without saying. But you need to have the right combination of the abilities of a banker, a manufacturer, a marketer and to have a good judgement of people. If there is a misjudgment in any one of these qualities, the combination goes wrong. It goes without saying that both Bharat and Vijay have the right combination of these qualities.'

Diamantaire Peter Meeus is more candid. 'Vijay can take risks. I remember when they were thinking of setting up a factory in Bangkok -- many were going to Thailand at the time -- but everybody went in for small sizes, Jewish and Indians, but not Vijay. He thought they should be polishing medium stones. Everybody thought he would fail, but that factory is doing very well.'

Contemplation of his success pushes Vijay into a reflective mood. 'I wish father had lived just five years more and could have seen our success. I always wanted to prove to my father that I could be somebody.'

Tall, fair and charismatic, Shantilal Lallubhai Shah was a jeweller, as was his father and grandfather before him. In 1957, under the Replenishment Scheme, the government permitted the limited import of diamonds so long as they were re-exported. Shantilal, who had just separated from his two brothers, spotted an opportunity. He spent the rest of his life shuttling between London and Antwerp, returning to Bombay every six weeks for a fortnight.

Living more or less on their own in a small bungalow at 56 Ridge Road in the Malabar Hill area, a stone's throw away from Aditya Birla's home in II Palazzo, it was a lonely life for Shantilal's family, wife Bhiki and their seven children: Dhanwant, Bipin, Bharat (b August 5, 1944), Vijay (b March 25, 1950), Saroj, Meena and Kokila. The children studied at various schools nearby such as Hill Grange, Campion and Bharda, leading a comfortable upper middle-class Gujarati lifestyle. However, the constant separation from a father whom they adored appears to have left a deep mark on his children and particularly Vijay, the youngest of the seven.

In the '60s, Shantilal settled in London, in a small house in Golders Green. The Shahs still own the house, though of late Vijay prefers to stay at the Dorchester. 'It was not like he was staying there (abroad) all the time. At least he must be coming four, five times a year to Bombay,' says Vijay.

During one of these trips, in 1969, Shantilal decided to take his daughters to Palanpur. He wanted to show them their roots. Soon after they arrived there, he suffered a paralytic stroke and died a few days later. Vijay, then 19 and studying at the London School of Economics, was on a diamond-buying visit to Gibraltar. Twenty-five years later, he still hasn't accepted his father's death. 'For two or three years, whenever I heard a knock on the door, I thought of father. He used to have a special kind of knock. I kept thinking father would come back. I couldn't believe this could happen. He was just fifty-four and such a fine man. People used to call him "Guru". If only it hadn't happened in Palanpur and he had been able to get proper medical treatment…'

At the wedding of his on, Rafees

In most sagas of empire-building, there is usually one deal or one incident which acts as a springboard. For Bharat and Vijay, the turning point came in 1974-76 when the diamond trade passed through a major shakeout. Many Indian diamantaires went bust. Vijaydimon and B Vijaykumar came out of it stronger. As others slowed down their manufacturing, Bharat began acquiring their factories.

Located in Surat and Navsari, these small units were often owned by the workers themselves. According to Bharat, 'The market was very bad at that time. All top business people, they were afraid. They didn't go for business and they closed down their factories. All the workers, they approached our company and we always supplied raw material. Our company grew very fast.'

'The time was difficult for everyone, but we did not find it difficult. We were always keeping in our mind that do the business, wherever you can, but only to your capacity. That is always our policy. When many people just jumped around, they did big business and all, we did it in our capacity. And when the times came bad, always the people became panicky. Which is in every business. And they started selling. They could not sell much polished. They could not buy rough. You have to have the cycle running. You can't just stop at that place,' says Vijay. The cost of roughs accounts for 70 per cent of total revenues.

For the youngsters, this was a period of fast growth. 'The whole market used to sit around and just talk: What Vijay is doing? What is he up to? When everybody is going down, what is he doing? What is the magic?' recalls Vijay gleefully. The secret was simple: buy cheap, sell cheap, build up volume, even a rupee's profit is good profit.

This minimalist philosophy went against the grain of most Indian diamantaires. 'People forget altogether that when the market is bad, you can ask for rough at much lower price. In a bad time, nobody wanted to hold roughs, even in the open market. You don't have to stick to old prices. So if the market is $ 20 cash, and if you can get the same roughs at $ 14, what's bad in it? You are talking about 30 per cent (reduction). Some are very strong. They would not sell it for a month or two months. And they would come to their senses, and start selling it at less.'

Buying the roughs cheaper meant that B Vijaykumar sold the polished cheaper. Because the 'people were thinking that we are undercutting the market. But if you sell the polished 10 per cent cheaper and still are making good profits from the lower (priced) roughs, what's wrong with that? This is the tricks of the business,' says Vijay.

His confidence stemmed from the fact that the market for polished diamonds was buoyant at particular levels. He feels others didn't have confidence in themselves to go for that market and those prices. 'Like I said in the beginning, the raw material -- the rough diamonds -- is very important. You have to know the business and you also have to have guts and full confidence. I see my buying. I know processing costs. I used to tell my brother on the phone, "Just throw it in the manufacturing. Don't worry about anything, just keep on selling."'

According to Bharat, their profit margins increased though those of others were squeezed. 'That time we were dealing with very low quality, where the added value is more and we are converting in hard currency. So the profit increased. Also, in good period, everyone can run and the profit margin is very low. In bad periods, suppose you can do more business, naturally you have more profits and you have more chances. That is why whenever the market is weak, that time our business is double. Others are closing down their business because they are afraid. They don't have the guts, you know,' he shrugs.

Vijay is more circumspect: 'We never went above our capacity but we made many turnovers. This is very important. You can make many turnovers if you are fast enough. We never stopped buying and on the contrary we bought bargains during that time because there were no buyers.'

It is said the Palanpuri's ability to drive a hard bargain would make Shylock blush. Nor does the Shahs's tendency to count every paisa's interest on a daily basis endear them to other businessmen.

Such accusations cut Bharat and Vijay to the quick. 'In any business, there are not all good people and the same is true for diamonds. But if you ask for our company, you would not find any complaints whatsoever in the market because I believe in paying one day before, not one day later,' says Vijay. 'The first thing you need in business is prestige, you know, and this is not easy. The money comes last in my diary.'

Normally laconic, Bharat is moved to protest: 'The Jewish people, you know, they take advantage up to the last. There are some Indians also who take advantage about the interest and other things. But you cannot cheat. We pay in time. In business, suppose you have a reputation, you don't waste [it].'

Excerpted from Business Maharajas, by Gita Piramal, 1996, Penguin Books India, Rs 295, with the publisher's permission.

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