New Delhi: Close to the heels of retardation in industrial productivity, the country’s core segment growth is decompressing too, posing more queries over the Indian growth story.

The data released by the administration showed that the core sector recorded a growth of just 6.3 per cent in July, as against 10 per cent in the same period of the last year (2006).

All the six core sectors such as steel, power, crude, oil, cement and petroleum refining led to a decline in overall growth. The six core infrastructure spheres contribute 26.7% of the industrial productivity The slowdown in development rate of the key sections reflects the huge fall in industrial productivity: from 13.2% in July 2006 to 7.1% in July 2007.

JNU professor Manoj Pant stated, “The slowdown is mainly due to sluggish demand from the construction sector that has also resulted in a fall in demand for cement, steel and electricity. This is on account of rise in interest rates, the impact of which has started showing on the housing sector. Moreover, the government’s flip-flop regarding formulation of mineral policy has lead to a significant fall in the coal sector.”

A market analyst said, “The slowdown in the core sector could have a direct bearing on economic growth, besides an adverse effect on other sectors that use inputs from these industries.”

Expressing concern over the retardation, finance minister P Chidambaram called the growth as unsatisfactory. He, however, stated that the demand will gain vigor once the festival season starts later this month.

According to government figures, crude petroleum depicted a depressing growth of 0.9% in July 2007 as against 4.1% in July 2006. Coal sector also put up a miserable show, slowing down to 1.1% growth in July 2007 as compared to 9.% in previous July. The growth in finished steel halved to 7.9%.

Kamal Nath, commerce & industry minister said, “Contraction in credit has achieved the purpose of controlling inflation, but now we should ensure growth is not impacted.”

Mr. Nath added that the RBI should amend the monetary policy and make sure that credit reduction does not cause a decline in industrial development.

Petroleum refinery production growth slipped to 4.6% from a strong 12.6% in July 2006. Performance by the cement sector was not hopeful either, with expansion rate plunging to 9% in July 2007 from 14% in July 2006. Electricity generation saw an increase of 7.5% this July as compared to 8.9% in the July 2006.

During April-July 2007, growth of the core segment dipped to 6.1% from 8.7% in the same period of the last fiscal. All segments, barring electricity, were affected by retardation, with crude petroleum exhibiting a depressing growth of 0.3% as against 1.2% growth in the corresponding period of the last fiscal.

Performance by coal and finished (carbon) steel was the most depressing in April-July 2007. Whereas growth in coal slumped to a mere 0.6% in the three months as compared to 8.% in the last year, finished (carbon) steel registered slower growth of 5.3% compared to a healthy 13% during the corresponding quarter of the previous year.