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Theory:

     Ramayya's heart was in a flutter. Ramayya's wife put the stud away in her box. She soon developed a severe fever and was confined to her bed. No one thought of searching their house.
 
     The he-sparrow said, "Look at the fun, my dear, the lady of this house is scared and is down with fever."
 
     "Nice fun indeed!" said the she-sparrow. "The poor woman is in a panic. The fever may be the end of her."
 
     "And a good thing too," said the cruel male sparrow.
Explanation:
 
When the police started checking around, Ramayya became very scared and nervous. His heart was in a flutter; he didn't know what to do and was worried how things would turn out when the police search their house.

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Ramayya became very scared and nervous

Ramayya's wife was equally scared. It was too late for them to bring the jewel to the magistrate or return it to its owner. So the wife did what she could do: she hid the stud away in her box. She was so scared and worried that she soon developed a severe fever. Soon enough, she became bed ridden. It could be because of the fear of catching the fever or the reputation of Ramayya, but either way, nobody searched their house. And no one learned about the little diamond jewel tucked away in the box.
 
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Ramayya's wife was so worried that she developed a fever

The happenings at the house were observed by the two sparrows living on the roof. Once again, the he-bird began the conversation. He was enjoying how the events had turned out and asked his wife to look at the fun happening at Ramayya's house; Ramayya's wife was scared and had fallen ill.

The she-sparrow was sympathetic towards the woman's situation. She couldn't consider the suffering of the others as entertainment and also was worried that the fever might end up killing Ramayya's wife. Though the she-sparrow seemed self-centred in the earlier scene, we understand that she is a practical and sensitive bird. Unlike the male sparrow, she was not cruel. For, we hear the male sparrow say that the death of Ramayya's wife would be a good thing.
 
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The she-bird is worried that the fever might end up killing Ramayya's wife
 
Meanings of difficult words:
 
S.No
Words
Meanings
1
Flutter(Heart or stomach flutter) To feel slightly uncomfortable because you are excited or nervous
2
Confined Restricted, kept in a limited space or area
3
PanicTo suddenly feel so worried or frightened that you cannot think or behave calmly or reasonably
4
CruelExtremely unkind and heartless, and intentionally causing pain
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.