By R. Suryamurthy
There is a number in the government’s latest disclosures that should unsettle anyone paying attention to India’s economic trajectory. Household financial liabilities — the debt Indian families owe to banks, NBFCs and other lenders — have soared 76% in just four years, rising from ₹77.7 lakh crore in March 2021 to ₹136.6 lakh crore by March 2025. And here’s the uncomfortable truth: the country has entered a phase where borrowing, not saving, is increasingly underwriting the Indian growth story. That fundamental imbalance is a ticking macroeconomic risk, even if it remains politically convenient to ignore.
The Lok Sabha replies tabled on December 1 offer a rare, consolidated snapshot of India’s household balance sheet — and the picture is neither benign nor temporary. The rise in debt is not happening in isolation; it’s taking place in a context where net household financial savings, the economy’s traditional shock absorber, have collapsed from 11.7% of GDP during the pandemic’s forced-savings year (2020-21) to just 5.0% in 2022-23 before inching back to 5.2% in 2023-24 and 6.0% in 2024-25. Even after the small recovery, India’s household saving rate is still dramatically lower than its pre-pandemic average of 7–8%. And that should worry policymakers more than they admit.
Meanwhile, liabilities have vaulted upward at a far faster clip. RBI data shows that financial liabilities grew at 18.5% in FY23 and 18.4% in FY24 — nearly double the growth rate of financial assets in some years. Asset stocks rose from ₹228.7 lakh crore to ₹352.6 lakh crore between 2021 and 2025, yes — but liabilities raced ahead, narrowing the safety margin that households depend on during downturns. This is the kind of creeping imbalance that doesn’t break an economy in one dramatic moment; it corrodes resilience quietly.
And the most striking part? India is not only borrowing more; more Indians are borrowing.
In March 2018, the number of “live unique borrowers” in the formal financial system stood at 12.8 crore. By March 2025, that number had exploded to 28.3 crore. The average debt per borrower has climbed from ₹3.41 lakh to nearly ₹4.78 lakh in seven years — a rise of more than 40%. These are not minor, cyclical fluctuations. They are structural indicators of a society where consumption, asset building, and even routine expenses increasingly require credit support.
RBI notes that the bulk of new debt has flowed into mortgages and vehicle loans — which, on paper, sounds healthy. But even asset-backed borrowing carries risks when it is underwritten by rising EMIs, stubborn inflation, uneven income growth, and a labour market still struggling to generate consistent wage increases for the middle class. If incomes do not keep pace, “asset-backed” can quickly turn into “stress-backed.”
What is more troubling is the long arc of data. Household liabilities remained broadly stable at under 4% of GDP between 2014–15 and 2019–20. Then the pandemic hit, savings spiked temporarily, and after that — debt simply shot up. By 2022–23, household liabilities had reached 5.9% of GDP. In 2023–24 they rose further to 6.2%, the highest in over a decade. Only in FY25 do we see a drop to 4.7% of GDP, and the government presents this as a sign of “early deleveraging.” That may be true. Or it may reflect households delaying borrowing due to higher interest rates, not because their financial position has meaningfully improved.
Another shift is happening beneath the surface: households are abandoning traditional bank deposits and flocking to mutual funds. Mutual fund investments have jumped from ₹0.6 lakh crore in 2020-21 to ₹4.7 lakh crore in 2024-25 — a nearly eightfold increase in absolute flows. As a share of gross financial savings, mutual funds have gone from 2.1% to a staggering 13.1% in just four years. Gross financial savings, by contrast, have barely crept from ₹30.7 lakh crore to ₹35.6 lakh crore over the same period.
This behavioural shift — from guaranteed returns to market-linked volatility — reflects a mix of desperation (to beat inflation), greater financialisation, and clever industry marketing. But it also means that Indian households are now exposed to market cycles in a way they weren’t a decade ago. When markets turn, savings buffers will crumble faster.
The government is quick to reassure Parliament that rising liabilities are partly tied to “physical asset creation,” citing data from the RBI’s Financial Stability Report. That is correct, but incomplete. The issue is not where households borrow, but how fast they borrow relative to incomes — and the fact that savings are not keeping up. A mortgage-driven rise in liabilities may be justified if wages, job stability, and savings are also rising. But wages have stagnated in several sectors, especially in the informal economy that still accounts for most employment. In the absence of rising incomes, asset-backed borrowing only masks the underlying vulnerability.
There’s a bigger debt story too, one that undercuts the government’s attempts to project fiscal prudence. India’s external debt has more than doubled from ₹29.7 lakh crore in 2015 to ₹63.0 lakh crore by March 2025, and ₹63.9 lakh crore by June 2025. Combine sovereign, corporate, and household leverage, and the picture resembles an economy running hotter on credit than the headline GDP figures acknowledge.
The danger is not that debt is inherently bad. A developing economy needs credit. The problem is the direction of travel — debt rising faster than incomes, liabilities rising faster than assets, and savings sitting well below historical norms. That is not a stable foundation for long-term growth; it’s a sign of fragility wrapped in optimism.
Yet, political messaging continues to celebrate high GDP growth while glossing over the erosion of household balance sheets. For an economy where household consumption accounts for more than half of GDP, weakening financial buffers are not a side story — they are the story.
The government, to its credit, has not hidden the data. But it also hasn’t framed it honestly. Phrases like “early signs of deleveraging” and “increased asset creation” subtly downplay the scale of the problem. A hard look at the numbers tells a different story: India is becoming a credit-dependent society faster than policymakers expected, and far faster than they are willing to publicly acknowledge.
What would a more honest economic strategy look like? Three things.
First, rebuild savings. This requires boosting disposable incomes — which in turn requires real wage growth, job-rich sectors (not capital-heavy ones), and social protection that reduces the need for precautionary borrowing.
Second, improve credit quality. The rise in borrowers is not dangerous by itself. What’s dangerous is rising debt among households without financial buffers. Regulatory vigilance must keep pace with the scale of credit expansion, especially among NBFCs where risk concentration is higher.
Third, restore the link between GDP growth and household welfare. For too long, India has treated high GDP prints as a proxy for rising prosperity. But the numbers in these parliamentary replies show a divergence: growth is increasingly being financed by household leverage, not household income.
India’s economy may be expanding on paper, but the financial footing of its households — the engine of consumption, savings, and long-term stability — is weakening. No country can sustainably grow on borrowed optimism. If India doesn’t confront its household debt problem now, it won’t collapse spectacularly tomorrow. But it will chip away, year after year, at the financial security of the very people whose aspirations are supposed to define the India Story.
The warning signs are already in the data. The question is whether policymakers want to read them — or wait for the debt cycle to make the consequences impossible to ignore. (IPA Service)
