Friday, April 21, 2006

India: A Nation in Debt?

A recent news item in The Times of India (April 18, 2006, Kolkata Edition) shares some interesting data about the growth of consumer debt in India, based on loans given by banks:

  • Between 1991 and 2005, the outstanding debt of and average Indian household increased more than 19-times - from Rs.675/- to Rs.13,000/-.

  • The overall consumer loans from banks increased more than 26-times, from Rs.9,599/-crore to Rs.2,58,583/-crores.

  • While the loans for consumer durables, grew only 3.75-times, the housing loans increased by more than 40-fold, from Rs.3,297/-crore (1991) to Rs.1,34,653/-crore (2005)... as the article points out, these loans do not indicate reckless spending, but a trend to borrow for building solid assets.

  • Another good news is that the outstanding loans on credit cards account for only Rs.8,405/-crores - merely 3% of the total retail outstanding.

    Unfortunately, the article does not explain the implications of the more than 22-fold growth of "personal loans" - from Rs.5,288/-crores to Rs.1,20,120/-crores, which account for more than 45% of loans taken by the Indians.

    Times sure have changed... a couple of decades back, being in debt was a social stigma. One saved, and then one spent/bought assets. Now, apparently, one buys and then pays... being in debt increases one's "credit worthiness". And if it is a mass phenomenon, then it is an indicator of "consumer confidence", a healthy symptom of a growing economy.

    So, Does this mean that India is
    -a booming economy?
    -a nation in increasing debt?


    Ajit Chouhan said...

    It's just one of the indicators of the fact that our social perception about wealth and spending has undergone a change.

    It's not just the stats; the decision making process about spending money in a family has also undergone change.Today every member in a family is a buyer.

    More than debt I see this as indictaor of consumerism and hedonistic society.

    raghu said...

    definitely indicates a healthy economy where people are willling to take risk and are not investing only in gold and silver....

    there is confidence in them that they will be able to pay back that keeps the economy growing ...

    big vicious cycle