Processed diamond exports from India, which meets nearly 80 per cent of global demand, have been hit by the Iraq war and a deadly flu-like virus in South East Asia, industry officials said on Wednesday.

"Exporters are complaining of declining orders and delay in payments," Pravin Nanavati, president of the Surat Diamond Merchants Association, told Reuters.

Diamond processing units in Surat in Gujarat process nearly 90 per cent of the diamonds exported from India.

Industry officials said more than half the diamonds processed in India are exported to the United States directly or through jewellery-designing centres such as Hong Kong and Singapore.

Shipments of polished diamonds to Hong Kong and Singapore for jewellery-making have slowed down because of the Severe Acute Respiratory Syndrome.

The diamond trade is one of India's top foreign exchange earners and accounts for nearly 17 per cent of the country's merchandise exports.

India mainly imports low and middle level rough stones for exports after cutting and polishing.

India exports diamonds, gems and jewellery worth $8 billion a year and a prolonged war in the Gulf could slow down demand for the precious stones in the United States, traders said.

"In the US, which is our main market, there is already a recessionary trend and any tax to fund war and reconstruction of Iraq will further cut the purchasing power of consumers," a trader said.

But Sanjay A Kothari, chairman of the government-run Gems and Jewellery Export Promotion Council, said the slowdown in exports was only ‘transitional'.

"April and May are anyway slack as far as diamond demand is concerned. We hope to see a pick up in demand only from June when Christmas buying starts," he said.

"We had seen diamond exports to the US rising sharply after the 1991 Gulf war and the attack on the World Trade Center. So this time too we are hoping for a similar pick up."

Indian industry has an ambitious target to raise exports of diamonds and jewellery to $10 billion by 2005. But its export sales in the year ended March were estimated below the targeted $8.5 billion, traders said.