India, like America is growing and we are getting the bad habit of Americans slowly. Eating out a lot through Zomato, Swiggy, eating carb rich foods like burger and pizzas, watching TV and eating and more worrisome is using BNPL (Buy now Pay later), EMIs and credit cards to buy items not necessarily needed, but advt. offers etc. (be it from Amazon, Temu, flipkart etc.) propel people to buy them. Some of it may be lying idle in one corner of the house
We are 47.8% of Debt to GDP up from 34.5% in 2016. A significant jump given our frugal living earlier (people used to wait endlessly for bus trips and not immediately call a cab like today) and the save for future mentality.
While Debt for asset creation is not a big issue, debt for consumption is a bigger issue.
Source: RBI – Financial Stability report, June 26.
As can be seen above debt for consumption is 49.7%. This is worrisome. Some may argue that other 3 world countries have a higher Debt/GDP ratio like below:
US can afford to have 122% Debt/GDP, but they have a currency which they can print and all countries accept. India's currency is not like that and any increase in Debt/GDP is worrisome. A false economic growth may be touted by the govt, but it is coming at a cost. The impact will be felt in future if our CAD and FC wealth of country does not improve through exports or otherwise.
Another concerning thing is as Income growth reduces, Debt is increasing and looks older version of income savings and debt is being replaced by Debt Income with no savings.
As Kotak blog says.
Debt, in itself, is neither good nor bad. Its impact depends on what it finances and whether income growth keeps pace with repayment obligations. Borrowing that supports homeownership, education, entrepreneurship, and asset creation can strengthen long-term economic growth;
borrowing that outpaces income growth can eventually become a constraint.
