Gloom threatens to engulf the Indian economy on a number of fronts – stagnating industrial production, slumping auto sales, slowing growth. But, more than any other sector, infrastructure would be the first to show signs if the country were truly slowing down — and if cement is anything to go by, that is exactly what is happening.

Data published this week revealed that the effects of the Reserve Bank of India’s hawkish monetary policy are spreading to the bricks and mortar of the economy, with sales falling up to 7 per cent last month as large-scale construction activity languishes amid high borrowing costs and uncertainty over anticipated government reform.

Analysts told beyondbrics that the cement industry, after a good run starting in 2006, faltered this year along with the rest of the economy. It should bounce back – but only if the government reforms kick in to spur growth.

“The cement industry enjoyed a bull run from 2006 to 2010, but it has seen a slowdown in the past six quarters,” said Shrinivasan, an industry analyst at Angel Broking. “It is a cyclical sector, and… it will take more than six months to improve on the ground level even if the policy-making paralysis in government is resolved.”

Cement companies facing the added pressures of higher import duties, high fuel costs and a falling rupee are now sandwiched between crimped production and the need to raise prices, its reported. It’s a dangerous combination that threatens to bring the industry’s projected profitability to its lowest level in a decade by 2012-2013, according to a trade publication.

The cement mixers aren’t exactly grinding to a halt, however. In Mumbai, apartment blocks and skyscrapers continue to rise behind the iconic Queen’s Necklace waterfront, while an expansion of the city’s commuter rail network is underway, along with a new terminal of the international airport.

Though India’s growth outlook is on shaky ground, the industry remains optimistic. It expects growth of up to 10 per cent next year on account of a growing real estate market, which makes up almost 60 per cent of demand for the grey stuff, and an ambitious government plan to boost large-scale infrastructure investment and affordable housing.

Investors seem to share their confidence: prices of cement stocks surged to a one-year high this week. Companies are likely to ride this wave of confidence well into the new year when analysts anticipate a correction in demand and prices.