Indians’ personal debt growing faster than income

In what could be an alarming trend for the Indian economy in the long run, the personal loans in the country have been growing at a far higher rate than the income levels.

A DH analysis of the data available with the Reserve Bank of India (RBI) reveals that while the personal loans in the country have grown by a compounded annual growth rate (CAGR) of 17.1% since March 2014, the disposable income has grown by a far lower rate of 11%.

The disposable income is the net of total income minus the taxes paid — the amount people have in hand to service their expenses.

The total personal loans in the country, at the end of March 2019, stood at a whopping Rs 22.21 lakh crore, 120% more than Rs 10.1 lakh crore in the corresponding quarter in 2014.

The personal loans in the country include consumer durables, housing loans, credit card exposure, education loans, and vehicle loans, among others. While the consumer durable loans have seen a sharp dip post-demonetisation, housing loans, on the other hand, have been growing at a very high rate – mostly because of the push from the affordable housing segment.

On the other hand, the gross national income (GNI) of the country, since 2014, has grown to Rs 188 lakh crore, 69% more than Rs 110.9 lakh crore at the end of March 2014.

GNI is the total amount of money earned by a nation’s citizens and businesses.

However, the 16% annual growth in the taxes, which eat into the GNI has been far higher than 13.2% annual growth in the income level. The tax collected by the government last year stood at Rs 12 lakh crore – 88% more than Rs 6.39 lakh crore mobilised during 2013-14.

As a result of this trend, the saving rate is coming down in the country, experts say.

“There has been a rise in unemployment, but those with employment as well have failed to see a growth in their income. Financial liabilities of households have increased, the cost of living of people has increased, leading to an increase in expenditure. However, there is no commensurate income growth. This is also probably why you have seen a decline in the savings rates off late,” said Kavita Chacko, senior economist, Care Ratings.

The overall savings rate fell to 32% in fiscal 2018 from a peak of 37% in fiscal 2008, with a steep fall in the household savings rate. Within household savings, both financial and physical savings rate diminished, with a sharper fall in the latter.

“In the last couple of years, it is mainly retail loans, which include housing loans, that have been driving the overall credit growth for banks,” she added.