Theory:

     Somewhere in the muck-heap lay a diamond nose-jewel. The male bird picked it up and came to the nest with the shining stud in his beak and said to his wife: "Look! Do you like this?
 
     The wife-bird replied, "What am I to do with diamond nose studs or with ear-rings? Find some grub; the young ones are hungry."
 
     The bird dropped the diamond stud on the floor and went out in search of little worms for the young ones.
Explanation:
 
After the she-bird disregarded her husband's suggestion that they should help Rammaya, the he-bird looked around and spotted a shining stone lying in the middle of a pile of dirt.
 
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Muck-heap where a shining stud was found
 
It was a diamond nose jewel. The bird flew to the muck-heap, picked the stud in his beak, and flew back to his wife. He asked his wife whether she liked it.
 
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The male sparrow discovered a diamond nose jewel
 

The wife-bird was obviously unimpressed. Being reasonably practical, she rebuked by saying that it was pretty useless. What was the bird supposed to do with nose-pins or ear-rings? After all, a bird cannot eat them, can they? Neither can it be exchanged for food. Moreover, her baby birds are hungry, and they need food.

So the female bird asked the male bird to bring some worms for their kids. The male bird tossed the diamond stud to the ground and flew off in search of worms.
 
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A sparrow with worms in his beak

One could observe that the writer had used wordplay when he used the term 'grub'. Grub is a kind of worm. The word can also mean 'food' in an informal conversation. Interestingly enough, both the words fit into the context. To the birds, worms and food mean the same thing.
 
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Grubs
 
Meanings of difficult words:
 
S.No
Words
Meanings
1
Muck-heapA pile or a collection of waste/garbage
2
Nose-jewelA jewel or ornament worn in or above a person's nose
3
StudA small piece of metal jewellery that is put through a part of your body such as your ear or nose
4
GrubAn insect in the stage when it has just come out of its egg, like a short, fat worm; food
5
RebukeExpress sharp disapproval of something
Reference:
State Council of Educational Research and Training (2019). Term-3 English Standard-8. The Nose Jewel - C Rajagopalachari (pp. 81-85). Published by the Tamil Nadu Textbook and Educational Services Corporation.