Editor’s Pick

09 April 2024

In the Editor’s Pick newsletter, The Hindu explains why a story was important enough to be carried on the front page of today’s edition of our newspaper.

Households’ debt surged to new high by December 2023
India’s household debt levels are believed to have touched an all-time high of 40% of Gross Domestic Product (GDP) by December 2023, a research report from financial services firm Motilal Oswal has said, indicating rising financial distress in the country.

At the same time, net financial savings had likely dropped to their lowest level at around 5% of GDP, the report added. In September 2023, the Reserve Bank of India (RBI) estimated that households’ net financial savings had fallen to 5.1% from 11.5% in 2020-21 – a 47-year low. The Finance Ministry countered this claim, saying that households are now adding fewer financial assets than in the past because they have started taking loans to buy real assets such as homes and vehicles.

“Our estimates suggest that household debt has risen to approximately 40% of GDP as of December 2023, reaching a new high. Based on banks’ data, it is clear that unsecured personal loans continue to grow at the fastest pace within household debt, followed by secured debt, agricultural loans, and business loans,” Motilal Oswal research analysts Nikhil Gupta and Tanisha Ladha said.

According to the report, weak income growth in addition to robust consumption and growth in physical savings are the main reasons for low 2022-23 net financial savings. While households’ physical savings stood at a decade-high in 2022-23, their total savings were at a six-year low level of 18.4% of GDP.

Over the first nine months of last year, households’ gross financial savings rose to 10.8% of GDP, from 10.5% in the corresponding period of 2022-23, but financial liabilities also rose by a similar extent to 5.8% of GDP from 5.5% of GDP. Households’ annual borrowings surged to 5.8% of GDP in 2022-23, the second highest in the post-Independence period.