Households’ debt surged to new high by Dec. 2023

Household Debt Level: Reached an all-time high of 40% of GDP by December 2023.
Net Financial Savings: Dropped to its lowest at around 5% of GDP, according to a research report by Motilal Oswal.
RBI's Previous Estimate: In 2022-23, household net financial savings were at 5.1% of GDP, the lowest in 47 years. The Finance Ministry contested this as a sign of confidence in future financial stability rather than distress.
First Revised Estimates: Updated figures for 2022-23 showed a slight increase in net financial savings to 5.3% of GDP, still marking the lowest rate in 47 years. Household debt was revised to 38% of GDP.
Personal Loans Growth: Unsecured personal loans are growing fastest within the household debt category, indicating a preference for loans over other forms of financial assets.
2022-23 Savings: The low net financial savings rate is attributed to weak income growth, strong consumption, and increased physical savings.
2023-24 Outlook: Motilal Oswal analysts predict net financial savings to remain around 5% to 5.5% of GDP for the full year, with both private consumption and household investment growth weakened.
Gross Financial Savings: Slightly increased to 10.8% of GDP in the first nine months of 2023-24 from 10.5% the previous year, but financial liabilities also rose, maintaining the savings rate at a low level.

Household Debt Level: The ratio of household debt to India's GDP hitting 40% indicates a significant increase in borrowing, potentially reflecting both financial strain and consumer confidence in future economic prospects.
Net Financial Savings: A drop to around 5% of GDP in net financial savings suggests that households are saving less of their income after accounting for debts, a situation attributed to various economic factors including weak income growth and high consumption.
RBI's Previous Estimate: The RBI's estimate of net financial savings falling to a 47-year low points to changing financial behaviors among Indian households, including increased borrowing for asset acquisition.
First Revised Estimates: Adjusted data showing net financial savings at 5.3% of GDP and household debt at 38% of GDP provide a nuanced view of financial trends and economic conditions affecting Indian households.
Personal Loans Growth: The rapid increase in unsecured personal loans within the household debt portfolio highlights a growing preference for borrowing without collateral, reflecting broader economic and financial dynamics.

Household Debt Level: In the 1990s, household debt as a percentage of GDP was relatively low, reflecting limited access to credit. By the end of the 2000s, this began to increase as financial liberalization took root, and consumer credit became more accessible.
Net Financial Savings: Net financial savings saw improvement during this period, benefiting from economic liberalization and the resultant growth in incomes. The savings rate was bolstered by relatively high interest rates on savings instruments.
Gross Financial Savings: Gross financial savings similarly increased, supported by economic growth and rising personal incomes, though a significant portion remained in physical assets.

Household Debt Level: This period saw a more pronounced increase in household debt levels, with the debt to GDP ratio rising gradually, reflecting growing consumer confidence and a buoyant economy encouraging borrowing.
Net Financial Savings: The net financial savings rate experienced fluctuations, generally maintaining an upward trend but with noticeable dips, particularly during economic downturns.
Gross Financial Savings: Continued to grow in absolute terms, though as a percentage of GDP, the rate showed more volatility, impacted by global economic conditions and domestic factors such as inflation and interest rate changes.

Household Debt Level: There was a significant increase in household debt, with the debt to GDP ratio climbing to over 35% by the early 2020s, driven by housing and personal loans.
Net Financial Savings: Saw periods of both increase and decrease, reflecting the economic challenges of this decade, including demonetization in 2016 and the COVID-19 pandemic. The savings rate dipped notably during the pandemic.
Gross Financial Savings: Gross savings continued to grow, but the focus shifted more towards financial assets, driven by government initiatives for financial inclusion and digital finance.

Published in : The Hindu

Date appeared in newspaper : 09 April 2024

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