Dirty secret of the world's diamond capital

This is where diamonds come from. In the hot, noisy and narrow streets of Surat, on India's west coast, men - and it is only men - sit down in bare feet to trade the world's diamonds.

For all of the reputation of the European diamond-trading houses, this dusty industrial city is the diamond capital of the world. Ninety-five per cent of the world's diamonds are exported from India, the country's Gem and Jewellery Export Promotion Council says.

Tourists are assaulted with the boast that of every 12 finished diamonds in the world, 11 of them were cut and polished in India, the vast majority in Surat.

Australia is a significant consumer. Last year, India exported about $US280 million in cut and polished diamonds to Australia, about 1 per cent of the country's total diamond exports.

In Surat the men sit on cushions at low white tables, or with their blue felt tables on their laps. The stones, wrapped in paper, are pulled from pouches hidden within shirts and laid before them.

With practised eyes the traders assess the maal, or product, bargaining rapidly in the local language, Gujarati. Prices are negotiated through a few quick taps on a calculator, agreed with a nod of the head.

Few questions are asked. Certainly, there is no discussion about the stones' provenance.

The transactions are quick, but there is growing concern they may also be dirty. Against industry denials there is any problem, evidence is mounting that conflict - or blood - diamonds are being smuggled into India and laundered here.

Last month two men were arrested carrying a massive cache, 9.72 kilograms, of conflict diamonds smuggled from Zimbabwe through Nairobi. They were looking for a buyer in Surat through whom the stones could be laundered, cut and polished so they came out clean. Rough, the stones were worth more than $US2.24 million, the finished product many times more.

The issue of conflict diamonds is not new. In the late 1990s it was revealed the profits made from diamond mines across Africa were being used by rebel armies to buy weapons and to fund their insurgencies.