Indicating a potential surge in financial strain, India's household debt levels are reported to have reached a record high of 40 per cent of Gross Domestic Product (GDP) by December 2023 (Q3FY24), while net financial savings plummeted to approximately 5 per cent of GDP, as per a report from financial services firm Motilal Oswal.

       The report, released last month, revealed that within household debt, unsecured personal loans have experienced the most rapid growth, followed by secured debt, agricultural loans, and business loans.

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       The report highlighted that throughout the first nine months of the previous year, households' gross financial savings saw a slight increase to 10.8 per cent of GDP from 10.5 per cent in the corresponding period of 2022-23. However, financial liabilities also escalated proportionally to 5.8 per cent of GDP from 5.5 per cent of GDP, the report highlighted. The annual borrowings of households surged to 5.8 per cent of GDP in 2022-23, marking the second-highest figure in the post-independence era.

       While households' physical savings reached a ten-year peak in 2022-23, their total savings plummeted to a six-year low of 18.4 per cent of GDP. The report emphasised that India's Gross Domestic Savings (GDS) declined to 30.2 per cent of GDP, lower than the 31-32 per cent range observed between 2013-14 and 2018-19, describing the decrease in households' net financial savings as 'dramatic'.

       This trend poses a potential risk to household net financial savings (HHNFS), which hinges on the balance between household gross financial savings and financial liabilities.

       The report attributed the dismal net financial savings figures of 2022-23 to sluggish income growth, coupled with robust consumption and an increase in physical savings. With income growth remaining subdued and household net financial savings expected to reach a historic low of around 5 per cent of GDP, it is unsurprising that both private consumption and household investment growth have considerably weakened in 2023-24, the report said.

       The first revised estimates of national income for 2022-23, published in February, had raised the estimated net financial savings in households to 5.3 per cent of GDP, still the lowest in 47 years and weaker than the average of 7.6 per cent of GDP recorded between 2011-12 and 2019-20. The revised estimates also increased household debt levels to 38 per cent of GDP in 2022-23, second only to the 39.1 per cent of GDP recorded in the pandemic-affected year of 2020-21, as reported by The Hindu.

       In September 2023, the Reserve Bank of India's (RBI) data showed that net financial savings of households was at the lowest in decades, reaching 5.1 per cent of gross domestic product (GDP) in FY23 compared to 7.2 per cent in FY22. Meanwhile, the annual financial liabilities of households rose by 5.8 per cent of GDP in FY23, compared with 3.8 per cent in FY22. The ministry had countered the criticism saying that households were acquiring fewer financial assets than in the past because they are taking out loans to purchase real assets such as homes and vehicles.

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       Going ahead, the report's forecast about FY25 said that in contrast to FY24, investments are not expected to serve as the primary catalyst for real GDP growth in the upcoming period, as government investments are anticipated to expand at a slower rate.

       While there is optimism that corporate investments may increase following general elections, it is projected that real investments will grow at a slower pace in fiscal year 2025 compared to fiscal year 2024, given the anticipated revival in the investment deflator aligned with the wholesale price index (WPI), the report highlighted.

       Conversely, the report noted that assuming no change in household net financial savings (FY25-S2), improved income growth could drive higher growth in private spending (combining consumption and investments) next year. "Nevertheless, real GDP growth is forecasted to be considerably weaker," it said.