The household debt-to-GDP ratio measures the total amount of household debt as a percentage of a country’s gross domestic product (GDP). This ratio helps assess the financial health of households in relation to the overall economy, with a declining ratio indicating improved financial conditions for households.
India’s household debt-to-GDP ratio decreased to 41.9% by December 2024, but the trend is concerning as it remains higher than December 2023 and shows a continued increase from 36.6% in June 2021. While lower than the emerging market average of 46.6%, the rise in consumption loans, such as personal and credit card loans, warrants monitoring by the Reserve Bank of India (RBI).
As of March 2025, India’s household debt-to-GDP ratio was 48.6%, a significant and alarming increase from the 41.9% recorded in December 2024. Even the Per capita debt increased to ₹4.8 lakh per individual borrower by March 2025, a 23% rise over two years.
(a) Types of Debt: A significant portion of household debt consists of non-housing retail loans, which accounted for 54.9% of total household debt as of March 2025 outpacing housing loans.
(b) Economic Conditions: As the household debt is higher (48.6%) than the average for emerging market economies (46.6%), it requires constant monitoring by Reserve Bank of India (RBI) due to uncontrollable and severely rising consumption loans and the presence of lower-rated borrowers.
Experts hoped that the household debt-to-GDP ratio would stabilise or decrease after December 2024 due to a slowdown in urban consumption and demand. But this did not happen and India’s household debt-to-GDP ratio increased dangerously to 48.6% in March 2025.
The following factors are contributing to the rising debt in India:
(a) Consumption over asset creation: A significant portion of the new borrowing is being used for immediate consumption rather than for assets like housing. This pattern is noted as a concern by financial experts.
(b) Financial Redundancies: The overall rise in debt also reflects easy and unaccountable access to credit for Indian households, without analysing its adverse effect upon Indians and Indian GDP.
(c) Growth in unsecured loans: The increase in unsecured loans (personal, credit card, and auto loans) is particularly worrisome.
(d) Income stagnation: Despite a robust economic recovery, household disposable income growth has lagged behind consumption growth, leading many households to borrow to bridge the gap.
(e) Gambling Addiction: Indians have been severely addicted to online gambling and stock market gambling. This has happened as Modi govt actively promoted online gambling and unregulated and unreasonable investment in stock market of India. Indians have been indebted due to these two money sucking black holes of India.
Despite, this debt based consumption of Indian economy, the domestic consumption in India has decreased significantly says Praveen Dalal.