Loan No Longer a Four-Letter Word

Things are so perverse that only if you buy on credit, can you avail certain discounts

- Bertie is a Mumbai-based fund manager whose compliance department wishes him to cough twice before speaking and then decide not to say it after all.

One aspect of the modern shopping that confounds Bertie is the selling establishment's insistence that buyers pay for their purchases in installments rather than upfront. In fact, things have become so perverse that only if you buy things on credit, can you avail certain discounts. Bertie wonders if these supposedly free lunches of 'pay later, pay lesser' are indeed free.

Bertie voiced these concerns to a banking analyst friend who instantly mailed him some charts. They were from recently released Financial Stability Report by the Reserve Bank of India. The first chart showed India's rising household debt. As a share of GDP, it is now 43% and has risen a good 7 percentage points in the last four years. To drive home the point, this chart was accompanied by one that showed the dwindling net financial savings of Indian households. Again, the culprit was the rise in household financial liabilities a.k.a. loans.

While Bertie was digesting these details, a few more charts landed in his inbox. He had clearly touched a nerve. This one showed that almost half of the aforesaid household loans were taken for consumption; not for buying assets like a house or a car and the proportion of such consumption loans increased for the lower-income households.