Behind credit fuelled growth

There is no cause for alarm, but erosion in household savings should not jeopardise future consumption

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Private consumption accounts for more than 60% of India's gross domestic product (GDP), making it the mainstay of economic growth. Given the fact that India's per capita income levels are still rising (as they should be), consumption's importance in overall economic growth will only increase. It is in this backdrop that the statistical trend of rising indebtedness among Indian households is a development worth paying attention to. A pivot towards greater debt-financing of current consumption can boost GDP levels by generating tailwinds for overall GDP — but if this pivot is happening without a concomitant rise in income levels (this is easier said than proved because credit decisions are also driven by expectations of future income) it can lead to an ero