Swarovski crystal beads, real and fake, are big business in India. But the children who stitch them into clothing suffer in appalling conditions, writes Dan McDougall

By Dan McDougall

A DECREPIT iron fan creaks in the corner of the windowless room, offering sparse relief from the rising humidity. The air is thick with the foul smell of old cooking oil and burning ghee floating up from the street kitchens and hissing braziers on the south Delhi street below.

Cross-legged on the floor, his tired eyes struggling to focus on a broad silk canvas, nine-year-old Khalil painstakingly pulls delicate loops of silver thread around tiny, intricate crystals. About him, in the same sweatshop, a dozen other children are squeezed into cramped, wood-framed workstations. Festering blisters ravage the tips of many of their fingers, perhaps a reaction to the dyes on the silk but most likely a consequence of gripping tiny steel needles for up to 16 hours a day.

Laid out on the saris stretched before each child are tiny mounds of precision-cut glass - Swarovski crystals - imported from Austria to satisfy huge demand for the decorative sequins and beads. In the late afternoon light the tiny jewels reflect a kaleidoscope of colours.

In the past few years, Swarovski beadwork has become a status symbol few Indian brides or wedding guests can bear to be seen without. No middle-class wedding is complete if the bridal lengha and dupatta are not adorned with thousands of hand-sewn crystals.

Daniel Swarovski, the multinational Austrian family firm, recorded an estimated turnover of more than $2bn in 2005 on the strength of endorsements from some of the world's leading fashion designers and film stars. But an investiga tion by The Observer has uncovered disturbing consequences of its soaring sales in the subcontinent: a growth in illegal sweatshops in the Indian capital, New Delhi, specifically to cater for the burgeoning demand for its crystals in embroidered saris, and a vast black market of counterfeit crystals.

'India is one of the biggest markets in the world for Swarovski sequins and crystal beads. Their profits here have grown by almost 150 per cent in the past two years,' says Manoj Kumar Singh of the Bonded Labour Liberation Front, a charity fighting to free child labour slaves.

'What the stock markets don't tell you is that the popularity of these sparkling adornments sold on by the firm has created a life of servitude, a living nightmare for tens of thousands of children who are forced to sew them into saris or cushions or jeans and men's suits.

'You only have to look at the glass beads Swarovski export here by the million to understand how they are attached to clothing. It needs to be done by hand, and small hands. The firm isn't directly running the sweatshops, but they are selling hundreds of millions of tiny sequins to people who do.

'To make matters a thousands times worse, the demand for Swarovski has spawned a massive black market, with fake crystals and sequins coming in from Taiwan and China, which means more work for child labourers.'

Founded by Austrian engineer Daniel Swarovski in 1892, the world's leading manufacturer of cut crystal grew from a maker of collectible figurines to a highly desirable brand found everywhere from Camilla Parker Bowles's wedding hat to P Diddy's crystal-encrusted mobile phone.

Its crystals are used in haute couture, jewellery, lighting, interior design, cosmetic products and chandeliers. The firm has factories in 15 countries and more than 14,000 employees worldwide.

Swarovski's popularity in India is the result of a calculated marketing campaign similar to the strategy that made it an icon of luxury in the West. It has collaborated with fashion houses such as Coco Chanel, Christian Dior, Yves Saint Laurent, Roberto Cavalli, Emanuel Ungaro and Gianni Versace, and leading British designers Julien Macdonald and Alexander McQueen. It has permeated the most lucrative aspects of youth culture: Swarovski crystals can be found on iPods and mobile phones, and its own crystal-studded temporary tattoos.

In India - a country long enamoured with glitter and crystals on garments, accessories and even temples and palaces - its staple profit makers are beads and sequins for some of the biggest names in clothing.

Swarovski has partnerships with nine of India's top fashion designers, including JJ Valaya and Tarun Tahiliani, whose clients include Jemima Khan, the Duchess of Kent and Bollywood stars Aishwarya Rai, Simi Garewal and Kabir Bedi. Five years after setting up its first shop here, Swarovski has 31 Indian stores and hundreds of wholesalers, and this week announced plans for 19 exclusive retail stores in the next three years.

The Observer visited more than a dozen sweatshops in the Udichand Marg and Kotla Mubarakpur areas of Delhi and saw children as young as eight or nine attaching Swarovski sequins and beads to couture saris and Salwar Kameez suits for sale in India and export to the UK and US.

Crystals were widely sold on the streets below the small factories by wholesalers with no documentation to prove they were registered Swarovski dealers.

'The demand for these crystals has got out of control here in Delhi,'

said Varan Manchanda, who owns a haberdashery store in Kotla Mubarakpur.

'We can't get enough of them to sell. Most of the sari manufacturers now use a mixture of Swarovski and counterfeit Swarovski on the garments to cope with demand. The popularity of the crystals has spawned a huge black market and a counterfeit industry worth an absolute fortune. Women are regularly walking into sari stores in Old Delhi and saying "I want a Swarovski sari, no matter what the cost." It's good for me and good for business.'

Three floors above, a dozen young boys are squeezed into a space that in this part of Delhi might normally accommodate a single family. Slumped against filthy walls or hunched over wooden frames, they are applying Swarovski crystals to beautifully dyed bolts of blue, yellow and pink silk that will be sold as haute couture saris in areas such as Southall, Wembley and Knightsbridge, fetching prices of more than $2,000.

'We work to order for sari shops in Chandi Chowk and other areas of Old Delhi, but also export to the UK, France and America,' the 'garment workshop' manager, Krishnan, says proudly, 'We use genuine Swarovskis, not fake, and there is a huge demand for our work in Europe and in particular our work with Swarovski crystals and fine gold embroidery.

The workers here are well treated, we feed them three times and they can come and go as they please. They are not slaves.' I point to one frightened looking little boy, no more than 10 years old. 'He is 15,'

Krishnan retorts. 'He is old enough to work, he can leave if he wants.'

The heavy padlock on the main entrance suggests another story. Access is through a labyrinth of dark mouldy corridors and winding staircases.

Each night the boys bunk down on the roof of the building where they work 16-hour days, sleeping amid a filthy tangle of cables and pools of oily stagnant water. The factory owner's dogs also sleep up here, biting at the fleas infesting their mangy fur.

'We treat them well,' Krishnan says as I look around at the filthy matted bedding. A late lunch is brought in metal bowls: clumps of potato floating in murky curry, a few chapattis. The boys greedily slurp it down before carefully washing their hands and getting back to work.

There are hundreds more of these sweatshops in Kotla Mubarakpur, the centre of Delhi's haute couture industry. Straddled between crumbling Mogul ruins and one of Delhi's busiest bazaars, it is a maze of alleyways and streets where police and foreigners rarely venture. The tightly packed buildings and heavily secured basements make it difficult to detect what goes on behind closed doors. Many sweatshops employ lookouts to keep their business and the ages and living conditions of their workers private.

Head of Swarovski India, Sanjay Sharma said: 'Swarovski has become synomous with all that glitters in the garment industry and there are many copies on the market. We cannot control our goods being sold on to third parties and ending up in sweatshops. The government has to be responsible for dealing with this problem, not us. But investigations like this show that the whole industry needs to get together and fight against the problem of child labour.'

Company spokesman Julian Vogel added: 'Swarovski is not aware of, and does not authorise or condone, the use of child labour by any third party manufacturer or supplier, and Swarovski does not knowingly engage manufacturers or suppliers who do so.'

In the past few months Delhi police and labour department officials have conducted raids and rescued hundreds of minors from embroidery units using Swarovski crystals, but Manoj Kumar Singh said such raids barely scratch the surface. 'The police have to rely on rare tip-offs because it is difficult to track down child workers, with employers setting up small units in back alleys, where the children are hidden from public eye. But even before the search parties get to the factories the owners are tipped off and many of the children are cleared out.

'More daring unit owners even hide the children in sacks and in carefully concealed mezzanine floors designed to dodge such raids. All the children are carefully tutored to say they are older than they really are.'

An estimated 17 million children are working in India, most of them on farms or making carpets or firecrackers, but more and more in textiles.

With increased global competition in textiles, particularly from China, child rights activists fear that the situtation will only get worse.

'The one thing India has to offer the global economy is some of the world's cheapest labour and the horrors that arise from Delhi's 5,000 inadequately regulated garment factories, some of which are among the worst sweatshops ever to taunt the human conscience, are unspeakable and unreported,' said Professor Sheotaj Singh, co-founder of Dayanand Shilpa Vidyalaya, a rehabilitation centre and school for rescued child workers.

'Here in India we still suffer from the legacy of the colonial days. We consider the workers to be our slaves, and this belief is made all the easier by a supply of labour, in particular child labour, that is endlessly abundant.'

Unicef says it is a myth that sweatshops died out early this century.

Spokeswoman Sarah Epstein said: 'One in 12 of the world's children are involved in the worst forms of child labour - in slavery, forced labour, armed combat, commercial sexual exploitation, in illicit activities and hazardous work including factory work and sweatshops. Such children are growing up alone and out of sight. They are missing their childhood.'

In one crowded corner of Chandi Chowk, the main shopping area of Old Delhi, people in their thousands squeeze through alleyways crowded with rickshaw bi-cycles and porters carrying everything from ancient pots of spices to sheets of glass on their heads. Groups of old men - some in the orange robes of sunyasin, the fourth stage of a devout Hindu's life

- meander through streets ringing small bells and clutching silver begging bowls draped in marigolds. Cows graze on rubbish.

To this chaos, Delhi's women come to shop. 'It is all Swarovski, yes?'

Puri asks a shopkeeper excitedly as her mother and sisters sit knee-deep in beautiful saris. 'It absolutely must be Swarovski, no fakes. How long did it take to finish the embroidery and put in all the sequins?' she asks the beleaguered shopkeeper. His reply satisfies everyone. 'Three months,' he says proudly, 'both pieces, the dupatta and the lengha.'

The human cost of the beautiful dress is far from sight.