India’s household debt soared to an unprecedented level, accounting for 40 per cent of the Gross Domestic Product (GDP) by December 2023, marking a significant escalation in financial strain.
This surge was paralleled by a concerning decline in net financial savings, which dwindled to a meager 5% of GDP during the same period. These findings emerged from a comprehensive research report issued by the reputable financial services firm, Motilal Oswal.
Earlier estimates from the Reserve Bank of India had already raised alarms, indicating that households’ net financial savings had plummeted to an alarming 5.1% of GDP in the fiscal year 2022-23, representing a 47-year nadir.
Despite subsequent revisions showing a slight uptick to 5.3% of GDP, the figures remained distressingly low, painting a bleak financial landscape for Indian households.
Moreover, the revised estimates underscored the persistent burden of household debt, pegged at 38% of GDP for the fiscal year 2022-23, the second-highest level since the pandemic-induced downturn in 2020-21.
Motilal Oswal’s research analysts, Nikhil Gupta and Tanisha Ladha, shed light on the composition of household debt, revealing a concerning trend.
Unsecured personal loans emerged as the fastest-growing component, followed closely by secured debt, agricultural loans, and business loans, indicating a broad-based escalation in financial obligations among Indian households.
The underlying causes of this financial predicament were traced back to sluggish income growth juxtaposed against robust consumption patterns and a surge in physical savings.
Consequently, private consumption and household investment growth experienced a pronounced deceleration throughout the fiscal year 2023-24, further exacerbating the economic challenges faced by households.
The persistent decline in net financial savings was not viewed as an isolated incident but rather a symptom of broader economic pressures.
Motilal Oswal’s analysts projected that net financial savings would remain stagnant at approximately 5% of GDP throughout the first nine months of the fiscal year 2023-24, portending continued financial strain for Indian households.
Reflecting on the preceding year, they anticipated that net financial savings would likely hover between 5% and 5.5% of GDP, affirming the enduring nature of the financial challenges confronting households.
Further analysis revealed a nuanced picture of household financial behavior.
While gross financial savings exhibited a marginal increase to 10.8% of GDP, financial liabilities also surged, reaching 5.8% of GDP.
This surge in borrowings propelled household debt to new heights, reaching 5.8% of GDP in the fiscal year 2022-23, marking a concerning milestone in India’s economic trajectory.
Amidst these dynamics, physical savings attained a decade-high, albeit against the backdrop of a six-year low in total savings, which stood at 18.4% of GDP.
The decline in Gross Domestic Savings, slipping to 30.2% of GDP, further underscored the precarious financial footing of Indian households, characterized by a ‘dramatic’ fall in net financial savings.