India’s sky-high household debt faces a year of reckoning
Subscribe to enjoy similar stories. The much-awaited boom of consumer spending has not materialized, with demand in both rural and urban areas remaining subdued. Consumer-staple companies have collectively reported less than 5% growth in volumes.
Overall, consumer-goods companies are likely to report a weak third quarter. Underlying the weak consumer sentiment is a sharp rise in household debt in recent years. According to central bank data, financial liabilities of households—or, borrowings—stood at ₹77 trillion in June 2021, a year into the covid-19 crisis and in the midst of the wrenching ‘second wave’.
As of March 2024, this had risen 56% to ₹120 trillion. Even relative to GDP, this represents an increase of about 4.4 percentage points, to 41% of GDP. By June 2024, this was at 42.9% of GDP, as per the financial stability report released in December by the Reserve Bank of India (RBI).
Interest payments can squeeze household finances and affect the ability to spend. Weak consumer spending increases the onus on the government to pick up the slack on investment and spending. At first glance, at 43% of GDP, household debt is not necessarily high relative to other countries.
But adjusted for per capita income, the picture changes. Also read | Souring credit card loans, and how Shaktikanta Das saw it coming RBI in its report said India's household debt was “comparatively high" as against that of other emerging markets. Countries such as Poland, Mexico and South Africa all have higher per capita income, but a lower level of household debt.
Read more on livemint.com
