India’s post-pandemic consumption surge, fueled by easy credit rather than rising wages or savings, has lost steam and is unlikely to recover in a hurry, according to analysts. With household balance sheets under pressure, the outlook for consumer spending appears bleak unless the job market revives and borrowing costs fall, economists and market strategists warn.
Household savings hit a six-year low in FY23, with net financial savings as a percentage of GDP slipping to 5.3%, far below the historical average of 7.6%, according to Reserve Bank of India data. Meanwhile, gross financial savings growth has lagged behind an explosive 30% annual increase in household liabilities from FY21 to FY23, a Crisil report noted. The surge in borrowing—driven by non-banking financial companies (NBFCs) and fintech players—has masked deeper cracks in India’s consumption engine.
“Consumption growth could remain weak for several quarters due to strained household finances, a cyclical economic downturn, and job automation,” said Saurabh Mukherjea, founder and CIO at Marcellus Investment Managers. He stressed that debt reliance will persist until the white-collar job market shows signs of recovery.
Debt-fuelled spending
Post-pandemic, the big growth in consumption came on the back of borrowings. Consumers have increasingly turned to loans for purchases, particularly electronics and cars. A Home Credit survey revealed that debt-financed smartphone and appliance purchases soared from 1% in 2020 to 47% in 2024. Similarly, 40% of passenger vehicles and 80% of electronics are now bought on credit, said Hitesh Jain, market strategist at Yes Securities.
But this reliance on debt is coming under strain. Central banks are tightening unsecured lending amid high inflation, leaving households with little wiggle room. “High-interest rates are squeezing finances, and income growth remains tepid while inflation persists,” said Ashutosh Bhargava, Head of Equity Research at Nippon India Mutual Fund.
Slowing earnings, waning demand
The effects are already visible in corporate earnings. Domestic auto companies reported just 1.8% year-on-year profit growth in Q2FY24, while consumer staples barely moved, at 0.1%. Consumption revival, Bhargava said, hinges on interest rate cuts—but even then, a recovery would take three to four quarters to materialize and must be accompanied by stronger income growth.
Debt vs. savings
India’s household debt-to-GDP ratio, while moderate at 17% compares with 60-70% in developed economies, is rising rapidly. The Crisil report attributed the drop in savings to easier credit access enabled by technology and aggressive lending from NBFCs and fintechs.
The debt-driven consumption boom may have masked vulnerabilities for now, but with credit tightening and savings stretched thin, sustaining spending growth seems increasingly unlikely. Consumption revival lies squarely in addressing the twin challenges of job recovery and lower borrowing costs, analysts reckon.
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