Borrowing more

India’s household balance sheet is sending mixed signals. On paper, financial savings have begun to recover after touching multi-decade lows. Yet beneath this improvement lies a more troubling reality: families are borrowing more than ever just to keep daily life afloat. The coexistence of rising savings and rising debt is not a statistical anomaly ~ it reflects an economy where income growth is failing to keep pace with the cost of living.

Over the past few years, household borrowing has shifted decisively away from asset creation. Loans once taken largely for homes or long-term investment are increasingly being used for routine consumption. This change matters because consumption-led borrowing offers no future income stream to service the debt. It merely postpones financial stress rather than resolving it. The root of the problem lies in the labour market.

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Employment growth, particularly in formal white-collar segments, has slowed significantly since the pandemic. Even where jobs exist, wage increases have struggled to match inflation. Official price indices may suggest moderate inflation, but the lived experience of urban households tells a different story. Costs of education, transport, healthcare, housing, and everyday services have risen far faster than headline numbers capture. For many middle-income families, the monthly budget now stretches thinner each year. As incomes lag expenses, borrowing becomes a coping mechanism. Short-tenure personal loans, buy-now-pay-later schemes and unsecured credit have stepped into the gap left by stagnant wages. What makes this trend concerning is not just the scale of borrowing, but the declining credit quality of borrowers.

A growing share of loans is flowing to households with limited repayment buffers, increasing the risk of defaults during even minor economic shocks. The pressure is not confined to borrowers alone. Financial institutions are beginning to see early signs of strain, with rising loan slippages and write-offs in segments linked to retail credit. While the banking system remains stable for now, persistent stress in household finances could gradually transmit risk upward, particularly if economic growth weakens or employment conditions deteriorate. A behavioural shift is also at play. Digital connectivity and social media have transformed consumption expectations. Aspirational lifestyles are no longer distant images associated with the wealthy; they appear daily on mobile screens across income levels. This visibility has altered spending psychology, blurring the line between wants and necessities.

Consumption increasingly reflects perceived social norms rather than financial capacity, encouraging households to smooth lifestyles through debt. The danger lies in mistaking debt-fuelled consumption for economic resilience. When spending is supported by borrowing instead of rising incomes, growth becomes fragile. Households lose their ability to absorb shocks, whether from medical emergencies, job losses, or interest rate increases. Addressing this challenge requires more than urging families to save more. Sustainable relief will come only from improving job creation, strengthening real wage growth, and aligning inflation measurement more closely with actual household spending patterns. Without these corrections, India risks building its consumption story on credit rather than confidence ~ a foundation that cannot hold indefinitely