Reader was dropped in the run up to G+. I believe there was a strategic decision to try and get people to move to G+ and move both personal news and organisational news together.
The leadership was never completely honest about why Reader was shutdown, and the stated reasons didn't pass some basic sniff checks. But it was easy to read between the lines: the executives' attention was on other things, and Reader was a threat to their growth. But also it was a passion project that a company like Google would struggle to keep updating since it brought in little revenue (even though there were hordes of people volunteering to maintain it for free in their 20% time).
The decline of RSS among a certain audience was only peripherally related to the elimination of Reader; it's not like there aren't other RSS readers out there even if Google makes a convenient villain. But Google did whiff on social in general and certainly indexing the world's information became a very secondary goal especially after failing with some efforts on the copyright front.