India Household Debt Hits Record 46% of GDP

Household debt in India reached a record 46% of gross domestic product in the year ending March, with borrowing growing by 36% and outpacing income growth. This surge was driven by a digital-lending boom and easier access to credit, which helped support a 7% economic growth rate but left middle-class consumers exposed to rising interest rates.

Nirmala Sitharaman, the Finance Minister of India, maintains that the country's consumption story remains intact and that increased spending is driving private sector investment. However, economists warn that relying on debt rather than savings to maintain spending is unsustainable. Evidence of financial strain includes a 45% increase in gold-backed loans, which lenders like Bajaj Finance and Piramal Finance note are being used by distressed borrowers to cover existing defaults.

In response to these economic pressures, the Reserve Bank of India implemented its first benchmark rate increase in nearly four years, raising the rate to 5.5%. Further hikes are expected. Meanwhile, the brokerage group CLSA estimated that Indian consumers are among the most constrained globally when mortgage debt is excluded from the calculations.