A sharp deceleration in the services sector, the engine of India’s growth story for a considerable part of the last decade, could well be the primary factor behind the current slide, with the economy set to grow at 4.9% in 2013-14, the second successive year of sub-5% growth.
The services sector (including construction) is forecast to grow at 5.9%, only slightly higher than last year’s 4.9%, but sharply lower than the 10-year average of 9% growth.
All the major components of the services economy — hotels, communication, financing, construction and public spending —have recorded growth rates below the decadal average during the last two years.
Between 2004-05 and 2009-10, the services sector, which accounts for more than two-third of the Indian economy, grew at an average of more than 10%.
This pulled the broader economic growth to more than 8% for all but 2008-09 — the year when a financial crisis roiled the world economy.
The last two years—2012-13 and 2013-14—have been particularly worrisome for the services sector with growth rates plunging to decadal-lows.
This year, for instance, the construction sector, the lifeblood of critical intermediate industries such as cement and steel and the income source for millions of daily wage earners, is forecast to inch at 1.7% during the year, marginally higher than last year’s 1.1% crawl.
Experts said a persistently weak manufacturing sector, projected to contract 0.2% during 2013-14, and a cut-back in government spending has cascaded through to the services economy.
“This clearly indicates that moderating performance of the manufacturing sector is taking a toll on the overall growth and is having a commensurate impact on the services sector as well,” said Sidharth Birla, president of industry association FICCI.