IT is alarming that despite the fact that 81.3 crore Indians receive food assistance and many are benefitted by different transfer schemes of either kind or cash offered by the state and central governments, household debt primarily to finance consumption expenditure is on the rise. The stress on household consumption expenditure is rising because of a decade long near stagnation of real wages and low real incomes of the average self-employed in India. The unemployment rate continues to be high compared to the past decades and to manage essential consumption, households increasingly are taking recourse to credit offered by banks and non-banking financial agencies.

In a neoliberal regime, constraints in aggregate demand set in as inequality reaches unprecedented levels. With increased financialisation of the economy, this constraint in demand is tried to be mitigated by credit-financed consumption. The behaviour of bank credit also undergoes a change with a rising proportion of consumer loans against credits flowing toward productive sectors such as industrial or agricultural activity. It is important to note that with rising uncertainty and vulnerability of average households, gross savings increased but there is also an increasing reliance on credit-financed consumption. Increasing privatisation of essential services, particularly health and education, along with rising prices of food and fuel have increased household consumption expenditure. Access to consumer loans through various agencies increases the availability of credit to people with a higher propensity to consume in the initial phase and helps boost demand, but as repayment liabilities increase, this results in a reverse flow of purchasing power to lenders, who generally have low marginal propensity to consume. As a result, jacking up demand through cheap credit ultimately leads to contraction of purchasing power and indebtedness may rise. RBI’s recent Financial Stability Report suggests that the difference between the growth of gross household savings and that of gross liabilities is declining, which is causing a decline in the growth of net household savings in the economy.

SIGNS OF DISTRESS

The household sector’s debt as a percentage of GDP increased consistently, reaching 45.5 per cent of GDP by the end of September 2025, which is much higher than the 5-year average of 42.9 per cent. Importantly, household assets grew by 7.4 percentage points of GDP from June 2022 to March 2026, but household liabilities rose faster by 9.4 percentage points during the same period. This indicates that the gap between asset and liabilities in the household sector is declining in the recent past. Also, there is a change in the use of borrowings in the household sector where 58.4 percent goes towards non-housing retail loans taken for consumption purposes rather than for asset creation or productive purposes. Non-housing retail loans grew much faster compared to housing loans or agriculture or business loans. The shares of home loans and auto loans in consumer credit outstanding is on the decline, but gold loans increased sharply during this period. Since March 2024 there has been a sharp rise in gold loans growing at a compound annual growth rate of 23 per cent, showing the highest growth in the non-housing retail category. This increase in gold loans is primarily driven by existing borrowers who borrow more using higher gold prices to roll over existing debt. Hence the trend of procuring gold loans was emerging from the segment which is already indebted. This trend is far more evident in the credit outstanding of non-banking financial corporation loans compared to that of the private and public sector banks.

Within the housing segment, it is significant that the share of high valued housing loans has increased in the recent period. The share of outstanding housing loans below Rs 25 lakhs in March 2014 was 60.6 per cent. Currently, outstanding loans above Rs 50 lakhs account for 44.7 per cent of outstanding loans. This primarily indicates that housing is largely emerging to be high value assets replacing borrowing for affordable housing. There is also a change in household liabilities which is increasingly shifting toward non-banking financial companies. Although four-fifths of household financial liabilities are bank loans, the share of NBFCs in household liabilities is on the rise.

The report suggests that the share of housing loans in credit outstanding declined from 34 per cent in March 2019 to 26.3 per cent in March 2026 and agriculture loan declined from 18 per cent to 15.3 per cent during the same period. In March 2026 about half or 49.7 per cent of household borrowing accounted for consumption while 33.5 per cent went for asset creation and 16.8 per cent toward productive activities. This simply shows that the majority of the Indian households are borrowing not to create assets or to use in productive activities but for consumption. In the early 1970s, household savings accounted for roughly 20 per cent of domestic savings which increased to nearly 50 per cent in mid-1990s and then it declined. It recovered a bit but again fell to 20 per cent in 2024-25, which was the case five decades ago. Decline in net household savings would of course reduce resources for investment. The growth of investment in productive capacities in the corporate sector show a long-term declining trend. If such situations continue, creation of employment and effective demand would suffer pushing down earnings for essential consumptions and households would depend more on borrowings for consumption.

AUSTERITY AND MARKET

Reducing government expenditure in the name of fiscal prudence is primarily to avoid taxing the rich. Public provisioning of food and essential services reduces the commodification of those consumables. Privatising such services and withdrawing the responsibility of the state in providing basic needs of food and shelter is a process of creating a market. This forces people to work for others and earn money for the needs which were earlier provided by the government. There is a significant increase in consumption expenditure on non-food items over the years for households of various income groups. Food and fuel prices increased. Rent on housing and expenses on transport increased with declining job opportunities in peri-urban areas. People are dispossessed from their livelihood and community support systems along with increased marketisation of resources. With increased migration, cost on food and stay increases, with mounting pressure in urban centres. On the other hand, gainful employment in agriculture is on the decline. Stagnant real income, unemployment and rising inequality explains the increase in liabilities of average Indian households.

Devaluing labour or reducing the consumption of working people has become the only mode of making profit for big corporates. But at the same time because of the same process huge profits made by the corporates in the recent past are not being adequately converted to investment toward increasing productive capacities. The pace of investment by private corporates didn’t pick up even through offering tax concessions and subsidies. They received all benefits which came at the cost of foregoing revenue. But the real sufferers of this revenue loss are common people who depend on public expenditure and their entitlements were cut down in the name of fiscal prudence. The rich grew richer while the poor and the middle class are incessantly drawn to borrowings for their consumption. This essentially indicates that investment in the household sector would also be on the decline. Borrowing for agricultural activity or business accounts for a lower share of the total household credit. Austerity in capitalism is a way of transferring resources from the poor to the rich by commodification of consumption, making them increasingly unaffordable and hence forcing working people to accept more exploitative conditions under pressure. India’s declining net household savings is an alarm bell to an already shrinking demand base which could hardly be sustained based on debt-driven consumption.