India’s household debt may have hit an all-time high of 39.1% of the gross domestic product (GDP) in the third quarter of FY24, which is higher than the previous peak of 38.6% in Q4FY21.
The debt is estimated to have jumped 16.5% year-on-year in Q3FY24, driven largely by a faster growth in non-housing debt, an analysis by Motilal Oswal reveals.
The increasing household leverage is in sharp contrast with the rise in corporate borrowings, which are estimated to have risen by just 6.1% y-o-y in Q3FY24, easing to a 15-year low of 42.7% of GDP.
Economists point out that household debt had gone up sharply towards the end of FY21 as many low-income families were impacted by the pandemic and were forced to borrow. However, it is a cause for concern that the leverage has not come down since then. “Cash levels with companies are high as they have reported strong profit numbers but are yet to invest meaningfully,” an economist said.
Moreover, while many experts have suggested that the higher leveraging is the result of families having taken home loans, Nikhil Gupta, economist at Motilal Oswal, pointed out that it is non-housing debt which is going up at a faster pace. In the December, 2023 quarter for instance, the non-housing debt increased by 18.3% y-o-y, housing loans went up by 12.2%. As such, the share of non-housing loans was 72% of total household debt.
In Q4FY21, at the height of pandemic, the country’s GDP grew at a slow 3.5% due the effects of the lockdowns while in Q3FY24, it grew at a strong 8.4%. It is worrying therefore, that despite a favourable denominator effect, household debt remains elevated as a share of the GDP.
The estimated increase in corporate debt in the December, 2023 quarter was almost as weak as the 5.5% y-o-y rise reported in Q2FY24 and slower than the 10% y-o-y reported in Q3FY23. The household sector accounted for almost 70% of the growth in non-government, non-financial debt in Q3FY24, the analysis by Motilal Oswal shows.
FE was the first to report on September 19, 2023 that net financial savings of households had fallen to a near five-decade low of 5.1% of GDP in FY23, down from 7.2% in FY22 as per Reserve Bank of India (RBI) data. Economists had attributed the sharp dip to a severe income crunch and likely transience of the post-pandemic rise in consumption.