India’s domestic debt reaches record high of 40% of GDP: report

India has made a record in terms of debt. According to an analysis by Motilal Oswal, India’s domestic debt has reached a record high of 39.1% of GDP in the third quarter of FY 2024. There are reports that savings are also decreasing. So the question is why is this happening? Is the income of the people decreasing or is the consumption of goods in the economy decreasing i.e. is there a recession like situation?

Due to increase in debt to this level, new concerns have started to arise. This situation is a cause for concern because despite significant growth in GDP, household debt remains high and savings are low. It is also a matter of concern that when the debt increases, the condition of a country can be understood from the situation of Sri Lanka. However, Sri Lanka was buried under foreign debt and in the context of India this report has come about domestic debt. By the way, India’s foreign debt is also very high.

There was poverty in Sri Lanka in mid-2022. There was a fuel crisis, food crisis, unexpected inflation and the economy was ruined. Rajapaksa reduced taxes after winning the elections. The result was visible. Compared to other countries, the revenue was relatively low and the debt on it increased. After this the credit rating agencies started downgrading Sri Lanka. To avoid this, the government printed currencies.
Due to this, inflation increased wildly in the country. Even food items had to be imported and foreign exchange reserves became empty. Although India’s economy is very different from Sri Lanka’s, and a similar situation is not likely at present, excess debt could lead to a bad situation.However, concerns are now being raised about the debt situation in India. India’s domestic debt is 39.1% of GDP. This is higher than the previous high of 38.6% in Q4FY11. The report said that there was an estimated growth of 16.5% year-on-year in the third quarter of this financial year and this was mainly due to the sharp growth in non-residential loans.

Moreover, net financial savings have fallen to its lowest level at 5% of GDP. Financial Express had reported in September 2023, citing Reserve Bank of India data. In contrast, corporate credit increased marginally.Unsecured personal loans offered by banks are on the rise, with ICICI Bank leading the way. ICICI Bank has the highest exposure to the unsecured personal loan segment at 13.8% till December 2023.

This situation is a cause for concern because despite significant growth in GDP, household debt remains high and savings are low. Economists have attributed the sharp decline in savings, even as debt levels remain high, to lower incomes and a slowdown in consumption in the economy, The Wire reported..