Service sector to see slower growth, says industry lobby

India's service sector could see slower growth, said a Confederation of India Industry (CII) report released here Sunday.

According to CII, recent data on specific service sector activities gives a mixed picture - while there has been a sharp drop in indicators such as tourist arrivals or air freight and passenger movements, railway traffic and cellular subscriber growth have been holding up.

In banking, deposit and credit growth have begun to slow down - though only moderately. Given that the service sector accounts for over 50 percent of GDP, trends in this sector will have important implications for growth in the coming year, the industry lobby noted.

CII also said the manufacturing sector has been severely affected, with the growth in net sales of a sample of 324 companies declining from 32.4 percent in the quarter ending September 2008 to 6.6 percent in December 2008.

Profit after tax (PAT), which declined by 4.3 percent in the second quarter, showed a further decline of 28.5 percent the next quarter ending December 31.

The study said the global financial crisis has had a significant impact on domestic monetary conditions: as capital outflows gathered steam, the Indian banking system faced a severe liquidity crunch in September and October.

This, CII said, has had an impact on banks' lending behaviour. Banks are averting taking risk, on account of increased fears of default.

Subsequently, credit growth has witnessed a slowdown, especially in the small scale sector. The year-on-year growth in bank lending has dropped from a peak of 29 percent last October to 22 percent as of Jan 16, 2009.