India's Household Debt Burden: A Rising Concern Driven by Housing Loans and Unsecured Lending
India's household debt has surged to 38% of GDP, driven by a rise in housing loans and unsecured lending. Is this a cause for concern?
Household DebtHousing LoansUnsecured LendingReal EstateIndia EconomyReal EstateSep 14, 2024
Although the report notes that this figure is lower than the peak of 39.2% in FY21, it still remains a concern. The rise in unsecured loans, including credit card debts, is also a notable trend that requires close monitoring. However, housing loans remain the primary driver of household leverage.
Interestingly, the report highlights that the increase in household debt has not impacted the overall gross household savings, which have remained stable at around 24% of GDP. Instead, the saving pattern has shifted from bank deposits to physical assets, particularly in real estate. This trend reflects a growing preference for homeownership and investment-driven demand for housing, which has so far been non-inflationary and non-speculative.
The report also notes that household debt linked to real estate is driven by investment rather than spending, making it more productive compared to debt used for personal consumption. In fact, investing in real estate can boost public infrastructure efforts, creating a stronger positive impact on the entire economy.
While the current levels of household debt are manageable compared to peer economies, the rising trend in unsecured lending and household leverage necessitates close monitoring. A sustained rise in household income is crucial for supporting household savings and keeping household leverage under control.
In conclusion, India's household debt burden is a rising concern that needs to be addressed. While the current levels are manageable, the trend of increasing unsecured lending and household leverage requires close monitoring. It is essential to strike a balance between promoting homeownership and investment-driven demand for housing while ensuring that household debt remains sustainable.
Frequently Asked Questions
What is the current level of household debt in India?
As of FY23, India's household debt has reached 38% of GDP.
What is driving the increase in household debt in India?
The rise in housing loans, which constitute over 50% of retail loans, is the primary driver of household leverage.
How has the increase in household debt affected household savings?
The overall gross household savings have remained stable at around 24% of GDP, but the saving pattern has shifted from bank deposits to physical assets, particularly in real estate.
Is household debt linked to real estate productive?
Yes, household debt linked to real estate is driven by investment rather than spending, making it more productive compared to debt used for personal consumption.
What is necessary to keep household leverage under control?
A sustained rise in household income is crucial for supporting household savings and keeping household leverage under control.
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