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India's household debt has risen to 39.1% of GDP, surpassing the previous record of 38.6%. Motilal Oswal's report attributes this increase to a 16.5% rise in non-housing debt, outpacing corporate borrowings, which only grew by 6.1%. The pandemic aggravated this trend, especially impacting low-income families. While GDP has rebounded to 8.4% growth, household debt remains high. Non-housing debt increased by 18.3% in December 2023, surpassing housing loans' 12.2% rise. The household sector contributed 70% to non-government, non-financial debt growth. Low household savings, at 5.1% of GDP, highlight economic challenges post-pandemic, necessitating careful management of household debt for sustainable growth.
A report by Motilal Oswal, a leading Financial Services firm in the country, has revealed that India's household debt has reached a new peak, at 39.1% of India's GDP. This is higher than the previous fiscal year's 4th Quarter record - 38.6%. According to the report, this surge, calculated to be 16.5% higher compared to the previous year in the third quarter of the financial year 2023-2024, is primarily fueled by accelerated expansion in non-housing debt. Advertisement
Conversely, corporate borrowings have only increased by about 6.1% in the last year. Compared to the significant increase in household borrowings, corporate borrowings are rising at a slower rate. Some economists highlighted that the sharp increase in housing debt is due to the effects of the pandemic, which pushed many low-income families to borrow. India's GDP growth during the pandemic was 3.5%, and since then, there has been a strong 8.4% growth in GDP (for Q3 FY24). Despite that, it is alarming to see that household debt still remains high.
Nikhil Gupta, an economist at Motilal Oswal, said that while the increasing household debt was initially attributed to increase in home loans, non-housing debt has gone up at a faster rate. In December 2023, non-housing debt rose by 18.3% compared to the previous year, while housing loans increased by 12.2%. This means that non-housing loans accounted for 72% of the total household debt during that period.
The report illustrates that the household sector contributed to about 70% of the growth in the non-government, non-financial debt in Q3 of the 2024 Fiscal Year. Corporate debt didn't rise much in the December 2023 quarter. It was almost as slow as the increase seen in the previous quarter (5.5%) and slower than the growth reported in the same quarter of the previous year (10%).
In September 2023, Financial Express initially reported that net financial savings from households had fallen to 5.1% of the GDP in the 2023 Financial Year, which was an all time low in the last five decades. This was even lower than the 7.2% of the previous fiscal year. These statistics are caused likely by the effects post-pandemic, with the rise of consumption. COVID-19's economic implications are leading to many challenges in India, with increasing household debt and low household savings among them. India's economy currently needs monitoring and managing household debt levels to ensure sustainable economic growth and financial stability.
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