India’s households, long regarded as cautious savers, are quietly taking on record lev-els of debt. According to the Reserve Bank of India’s Financial Stability Report, household debt in India was 42%
of the GDP at the end of 2024, up from just 26% in 2015. Which means that in absolute terms the total debt is nearly three times bigger. The average debt per individual has jumped 23% in just two years.
This means the average debt per person is rising at twice the speed of national income. It has risen from Rs 3.9 lakh in 2023 to Rs 4.8 lakh by March 2025. More than half of this borrow-ing, i.e., about 55%, comes from non-housing retail loans such as credit card dues, personal loans, auto loans, and gold loans, while traditional home loans make up on-ly about 29% of total household debt.
Thus, an increasing share of household bor-rowing is being used not to build assets but simply to make ends meet. The middle-class and lower-middle-class families who prided themselves on thrift and saving for children’s education, gold jewellery, or a small home are borrowing to spend on cur-rent consumption.
A rising debt-to-GDP ratio, especially if the borrowing is driven by consumption rather than productive investment, will weaken the foundation of India’s long-term sus-tained growth. India’s debt ratio is still much lower than other developed economies.
For instance, in Australia and Canada the household debt is more than 100 per cent of the GDP. But unlike India, these two countries have generous social security and old-age-assured income security, reducing their households’ need to have high sav-ings. In the US, too, the ratio of household debt to GDP is 75%, and in China it is 63%.
The memory of the financial crash and crisis caused by housing mortgages in the US and the Evergrande crash in China is hopefully not forgotten. Compared to a poten-tial bubble-like build-up, Indian household debt at 42% of the GDP looks manageable. But one must note that it has risen steadily for five years, substantially outpacing in-come growth.
A study by the Bank for International Settlements, spanning 54 coun-tries, found that while higher household debt initially boosts consumption and the GDP, beyond a threshold of 60% of the GDP it begins to drag growth down, reducing the long-run GDP by 0.1 percentage point for every additional point of debt. India’s ratio, though currently lower, is moving in that direction.
The problem is not household borrowing per se, but the purpose. Loans for educa-tion, housing, or small businesses build future assets. But loans for consumption cre-ate no productive capacity. As households divert more of their income toward servic-ing personal loans and credit card bills, less remains for savings or investment.
This has been enabled further by easy digital lending, instant credit card approvals, and aggressive consumer finance marketing. It has become very easy and effortless to bor-row small amounts. But what looks like convenience often hides vulnerability. A growing number of households are using credit simply to pay for everyday expenses, such as groceries, utility bills, school fees, or healthcare.
This is seen in the ballooning of gold loans too. The data from the Reserve Bank of India shows that gold loan portfolios more than doubled between mid-2023 and mid-2025. The growth rate for all gold loans was a whopping 122% in July 2025. The bulk of the gold loans from banks is of a ticket size of less than 2.5 lakhs, for which the RBI has slackened the regulatory limits.
There is a lighter appraisal, and the loan-to-value ratio is allowed to be as high as 85%. But the RBI is also aware of the build-up of bad loans in microfinance and has tightened the regulation there. During the same peri-od, microfinance outstanding loans have dropped by 16.5%, indicating that some of the increase in gold loans is a substitution.
It means that the lower- and middle-income households, who depended on MFIs or unsecured credit, are turning to gold loans, which have also been fuelled by soaring gold prices. In the next few years, the expected growth rate in gold loans is more than 15% per year.
But we must keep in mind that the surge in gold loans is not a sign of financial deepening. It signals that households are liquidating their last-resort savings to finance consumption or service other debts. The gold loan boom reflects an uncomfortable reality: it is both a safety valve and a red flag.
Along with rising household indebtedness are two other phenomena causing con-cern. One is that rural wages have remained stagnant in inflation-adjusted terms. The cost of urban living is rising. Hence, debt has become a coping mechanism. The sec-ond is the phenomenon of declining financial savings of households.
Net financial savings have declined from 11% of the GDP in FY2021 to just 5% in FY2023. There has been a slight improvement in the past two years. The household savings pool has been the bedrock on which both the government’s fiscal needs and companies’ credit needs are financed. With declining savings, these will become costlier to finance.
It is true that some of this also reflects a shift in the credit culture. The aggregate sav-ings rate is down from a peak of 36% to about 30% of the GDP. There are aspirations for higher living standards. Digital credit is easy to access, and there is perhaps a post-pandemic desire for instant gratification. The fact is that consumer loans have been outpacing bank credit growth for the past five years.
Nearly 55% of household debt is non-housing, which means essential consumption loans. Credit card spending has increased 13 times in thirteen years, and the number of credit cards in use has quintupled.
Younger, salaried consumers are borrowing heavily against future income to sustain present lifestyles. At the same time, lower-income and rural households, facing stagnant earnings, are turning to gold and small personal loans to manage es-sential spending.
Credit expansion boosts demand and growth in consumer goods. But it makes households vulnerable to shocks caused by job loss, illness or crop failure. It crowds out financial savings, making credit costlier. Beyond a point, it increases financial sys-tem stress. If left unchecked, it can erode the very resilience that once defined Indian households.
Reversing the slide requires restoring the habit of financial savings, rais-ing real incomes, and ensuring that borrowed money builds tomorrow’s assets, not just today’s consumption. It requires regulating aggressive consumer lending. It needs to encourage loans for education, homes and MSMEs.
India’s households, once the quiet financiers of both growth and government, must be restored to financial health, which can be achieved by returning to traditional values of caution and thrift rather than leaving them on the path to distress and debt.
Dr Ajit Ranade is a noted Pune-based economist. Syndicate: The Billion Press (email: editor@thebillionpress.org)
