Slowdown Blues: Slump in Indian economy spreading to services sector

The fastest growing services sector is now hitting speed breakers. This is what the bank credit data to the services sector indicates if one looks at last six-year numbers. The total bank credit to services sector has grown at a compound annual growth rate (CAGR) of 10 per cent in the last six years to Rs 24.15 lakh crore. The overall growth numbers look comfortable, but some of sub-sectors are witnessing a slowdown in the credit demand.

Unlike manufacturing sector that hogs the limelight, the services sector does not get enough attention. Jobs generated by the services sector are not in proportion to its share in the gross domestic product (GDP), which is over 50 per cent.

The credit to shipping sectors shows a steep decline. This worst-affected segment shows the gross credit by banks declining to Rs 7,700 crore in 2018-19, down from Rs 9,900 crore six years ago.

Similarly, the credit to tourism, hotel and restaurant is also in negative as compared to six years ago. The credit outstanding currently stands at Rs 39,000 crore whereas it was Rs 39,200 crore six years ago.

Computer services is yet another area that hasn't grown in the last six years. It has moved from Rs 17,600 crore to Rs 18,500 crore.

Two big segments - transport and commercial real estate - are also in the grip of a slowdown. In case of commercial real estate, the credit has grown at a CAGR of little over 4 per cent from Rs 1,54,400 crore six years ago to Rs 2,02,000 crore. This segment is likely to see further slowdown in funding as banks as well as NBFCS are withdrawing from the real estate market. The money-market credit via commercial paper and bonds is also not easily available.

The credit to transport operators has grown at a CAGR of 7.37 per cent from Rs 90, 400 crore six years ago to Rs 1,38,500 crore.

The declining credit in the services sector mirrors the general slowdown in the economy. The services sector growth in the GDP has already moderated to 7.5 per cent in 2018-19 from 8.1 per cent in 2017-18. In fact, the first economic survey of the second-term of the BJP-led NDA government also pointed out that there is a deceleration in services segments such as tourism, trade, hotels, transport, communication, public administration and defense. The overall GDP has already plunged to 6.8 per cent in 2018-19. The outlook for 2019-20 is also not very encouraging. The Reserve Bank of India has reduced the growth forecast for FY20 to 6.9 per cent in its monetary policy. Recently, a leading credit rating agency CRISIL had also cut the FY20 growth forecast to 6.9 per cent.