Home Latest News Indian debt and poor income growth recorded in the coronavirus era

Indian debt and poor income growth recorded in the coronavirus era

Indian households have entered the Covida 19 blockade with record levels of debt and low income growth, making it difficult for many families to cope with the loss of income caused by the pandemic.

Indian households owed almost Rs 43,500 billion at the end of March this year, compared to Rs 6,600 billion at the end of March 2008 and Rs 19,300 billion five years ago, at the end of the fifteenth fiscal year.

Outstanding personal loans currently account for 21.3 percent of India’s FY20 GDP, up from 13.2 percent at end-March 2008 and 15.5 percent at end-March 2015.

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Over the last five years, household incomes, which are mentioned in the bill on the wages of the country’s main listed companies, have increased by a compound annual growth rate (CAGR) of 4.3%, compared to 17.7% for household and personal loans. It is based on the Reserve Bank of India and the balance sheets of the main non-bank private creditors (see table below).

Some of the non-bank lenders in our sample are Housing Development and Finance Corporation, Bajajaj Finance, Shriram Transport Finance, Indiabulls Housing, L&T Finance and M&M Finance.

Over the past five to six years, wage growth has been in the low single digits and adjusted for retail inflation of 4 to 5 percent, workers have struggled to maintain their purchasing power, and real income growth has been low or non-existent, said Dhananjai Sinha, chief equity officer and chief strategist of the Systematix Group.

Figure However, many households and individuals have maintained their level of consumption by reducing their savings and/or borrowing. The share of household savings in GDP fell in the last year for which data are available from 19.6% in year 15 to 18.2% in year 1919 and from 22.4% in year 20. The Commission considers that the share of household savings in GDP fell by 19.2% in the year.

In contrast, the Lehman crisis of 2008 was preceded by a period of strong double-digit household income growth, giving many families a large nest egg to cover their losses.

For example, total labour costs for the sample of 977 listed companies included in the BSE 500 Index, the BSE Average Capital Index and the BSE Small Capital Index increased by 24.5% between FY2004 and FY2008.

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In recent years, households have been disappointed in terms of income growth and related cash flows. Over the last five years, household incomes, which are mentioned in the bill on the wages of the country’s main listed companies, have increased by 4.3%, roughly in line with the level of consumer inflation.

The distinction between income and consumption shows that the private consumption component of India’s gross domestic product (GDP) has increased by 16 percent over the last five years, almost four times the consumption component of GDP.

The result is a steady increase in debt relative to household income, no matter how you look at it. For example, personal loans outstanding in FY20 represented 21.3% of India’s GDP, up from 13.2% at the end of March 2008.

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The growth in personal loans means that interest rates on personal loans, including housing and car loans, now account for a larger share of household income and cash flows than in 2008. Analysts say this could force many people to reorganize their household budgets after the pandemic.

We can expect a sharp drop in consumption and a reduction in consumer spending, as well as an increase in savings (as a percentage of income) when people try to adjust their finances to the new economic realities, Sinha said.

Others argue that the crisis cannot be compared to that of 2008, which originated in the United States and had a significant impact on financial services and foreign trade.

Currently, almost 75% of the industry and service segments are closed. On the other hand, the 2008 crisis led to a drop in Indian exports of goods, while banks and financial service providers were unable to mobilise funds from foreign investors. The rest of the economy functioned as usual, even in the middle of the crisis, according to G. Chockalingham, CEO and founder of Equinomics Research & Advisory Services.