Over the past decade, a silent crisis has been unfolding in middle-class India. While incomes have stagnated and job opportunities have dwindled, borrowing has surged at an unprecedented rate. The result is a paradox that would have seemed unthinkable just ten years ago: Indians now carry one of the highest debt burdens in the world, excluding mortgages – surpassing even consumption-heavy economies like the US and debt-fuelled growth stories like China.
This transformation has been swift and dramatic. Until 2019, India’s non-housing household debt remained broadly aligned with international peers. The Covid-19 pandemic marked an inflection point, and unlike other nations, where borrowing subsequently moderated, India’s trajectory continued its steep ascent. Today, non-housing household debt as a percentage of GDP stands at 32 per cent in FY2025, up from 23 per cent in FY2017. For borrowers caught in this cycle, the mathematics are brutal: Nearly 40 per cent of annual income is now consumed by debt servicing alone.
What makes this borrowing binge particularly alarming is its composition. These are not loans funding productive assets or wealth-creating ventures. Instead, much of this debt finances non-essential consumption – vacations rank as the most common reason for taking personal loans, with over a quarter of such borrowing dedicated to holidays. Social media, discussed in Chapter 8, plays a significant role in these consumption-fuelled debts. The affluent segments of the middle class are borrowing for aspirational purchases like premium smartphones and lifestyle upgrades, while less affluent households turn to debt for essential needs like healthcare and education. The RBI’s December 2024 Financial Stability Report reveals that 45 per cent of all borrowers are classified as sub-prime, and nearly half of their loan requirements are directed towards consumption rather than investment.
The consequence is a debt trap of staggering proportions. Nearly half of all Indians taking personal loans have multiple live loans outstanding, often juggling borrowings from three or more lenders simultaneously. With effective interest rates above 10 per cent and incomes growing at best in the high single digits, the mathematics is unforgiving: debt burdens are growing faster than the ability to repay them. This chapter examines how a convergence of changing social attitudes towards debt, the financialization of essential needs and aggressive lending practices has ensnared between 5 and 10 per cent of India’s retail borrowers in a vicious cycle where new loans are taken simply to service old ones.
In light of the scarcity of jobs and wage compression discussed in the previous chapters, it is not surprising that the RBI has highlighted that net household savings in India (i.e., household savings less household borrowings) as a percentage of income hit a 50-year low in FY2023 and despite rising to 6 per cent in FY2025, is still much lower than what it has been historically. The reason for this figure plunging is not so much falling savings; it is the soaring financial liabilities that are to blame. Indian households have become world champions in borrowing money – lots of it, non-stop and at high cost.
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One of the Most Indebted People in the World
Over the past decade, not only have Indians borrowed at an increasing rate while their incomes have stagnated, but now they are also one of the most indebted people across the world whose debt (excluding mortgages) as a percentage of GDP now surpasses that of the US and China, as mentioned earlier.
Until 2019, India’s nonhousing household debt was broadly in line with other countries. In 2020, reeling under the impact of Covid-19, India witnessed a steep fall in GDP, and resultantly the line spiked up during this period. After this shock, India’s nonhousing household debt has surged at a rate faster than any of the countries shown in the chart. As a result, India has now surpassed developed countries that are traditionally considered to be consumption heavy (like the US) as well as developing countries that have typically relied heavily on bank credit for development (like China).
Non-housing household debt as a percentage of households’ gross domestic product now stands at 32 per cent, up from 23 per cent in FY2017. The result of such high levels of debt is that for borrowers, nearly 40 per cent of their annual income is being used to service debt. Most worryingly, most of these retail loans are not for creating productive assets but for satisfying consumption needs. More specifically, this borrowing is financing aspirational consumption (such as phones and holidays) for the more affluent members of the middle class and essential consumption (such as healthcare and education) for the less affluent members of the middle class. We discuss both aspects of Indians’ borrowing binge further on in this chapter. This surge in borrowing to finance consumption is also evident in data published by the RBI. Specifically, if we were to look at the RBI’s Financial Stability Report from December 2024, it shows that not only have consumption related loans risen in the past several years, but also that 45 per cent of all borrowers are sub-prime and nearly half of their loan requirement is towards consumption.
This excerpt from ‘Breakpoint’ by Saurabh Mukherjea with Nandita Rajhansa and Sapana Bhavsar has been published with permission from Juggernaut.