Rising Household Debt: Indian household debt increased significantly from 36.6% to 42.9% of GDP between June 2021 and June 2024, signaling a potential macroeconomic challenge.
Consumption-Driven Borrowing: A significant portion of new loans is for consumption rather than investment, especially unsecured personal loans, raising concerns about sustainability.
Income Growth Lag: Household disposable income (43%) and consumption (49%) growth has not kept pace with the surge in personal loans (75% banking sector), retail credit (70% NBFCs, HFCs), and microfinance (67%).
Debt-to-GDP Ratio Importance: This ratio reflects a country’s ability to repay debt. India aims to reduce the central government’s ratio to 50% ± 1% by 2030-31. Current estimates are 57.1% (2024-25) and 56.1% (2025-26).
Public Debt Composition: Public debt includes liabilities repaid from the Consolidated Fund of India, classified as internal (over 93%, primarily domestic) and external debt (19.4% of GDP in Sept 2024).
RBI’s Policy Shift: The RBI initially tightened credit growth measures but has partially reversed course due to slowing economic growth, raising questions about the effectiveness of spurring consumption through more debt.
Rising Delinquencies: Overdue loans are increasing, especially in gold loans, personal/consumer finance, and vehicle segments, indicating stress among borrowers.
Lender Caution: Lenders are becoming more cautious about lending to overextended households, which may limit further credit expansion.
Structural Economic Issues: The household debt surge reflects underlying problems like inadequate job creation and sluggish income growth, requiring a carefully crafted policy response.
