Indian FOMO of Debt - Consumption Boom Fiasco

 

The data is hidden, and the media keeps manipulating the data to hide the truth behind the Indian household debt pile. The data is not restricted to what the newspapers write, but when one di.gs harder into the facts, it's more shocking rather than to be taken lightly.

 Your loans were good, and now they're about to turn bad. This line is slowly becoming applicable for all those people where the threat of job loss is slowly getting into their nerves. The Indian consumption market is currently witnessing a golden phase, but it seems short-lived.  Taking a personal loan and investing in the equity market is a trend that cannot be gauged by the RBI or by any other. It's one of the most risky recipes for a total collapse of an economy.  We know within our friends and families who are doing these types of things.

The Indian consumption boom has been stupendous. Right from the time of the Festive season of 2025 to the 1^st of January celebration, the consumption boom is well reflected in every corner. Falling interest rates and a nil tax liability up to a salary of Rs 12 lakh are a major boost for the consumption boom. A lot of AMCs came up and garnered significant money into the consumption theme Funds. People are in spending mode and enjoying the GDP growth of the Indian economy, which is hovering around 7.5% to 8.2%. But every borrowing is not for consumption only. 

This era of consumption and borrowing is different when compared with the last 10 or 15 years. The aspirations of life are significantly different, which leads to this consumption boom. It’s a generational gap that comes into play behind the curtains of Indian consumption growth. Debt is piled up, and savings are collapsing, and the risks also increase when personal loans get into the equity market, which is very hard to figure out.

But how strong is this consumption boom, and is the whole source of funding from personal savings or from borrowed capital? Unsecured loans and personal loan numbers are the most risky segment, which will impact the Indian economy may to be now but sooner than later.

Household debt rose to 41.3% of GDP by the end of March 2025, well above the five-year average of 38.3%. More tellingly, the composition of borrowing is shifting—non-housing retail loans, largely consumption-led, now account for over 55% of total household debt (as of September 2025). The break-up is more threatening:

Personal loans are growing ~35% YoY overall, driven by smaller-ticket, short-term loans (up 77% YoY in some platforms) and digital lending.

Outstanding volumes reached ~₹13.7 lakh crore in H1 FY2025, with market projections to ₹4.3 lakh crore by end-2025 in certain segments.

H1 FY2025: ~11% YoY for unsecured personal loans; credit cards ~18% YoY.

Fintech-driven unsecured lending: Robust at 36.1% growth (Sep 2024–Sep 2025), with personal loans forming >50% of fintech portfolios. 

Overall retail credit: Grew ~17% in 2025 to ₹144 lakh crore outstanding.

Non-Housing Retail Loans (predominantly unsecured/consumption-oriented): Share rose to 55.3% of total household borrowings by Sep 2025 (up steadily over the years), outpacing housing (28.6%) and productive loans (16.1%). Personal loans specifically accounted for 22.3% of consumption-purpose loans.

The pile of debt did not happen in one go. The historical trend has been different.

Key Trend Data Points (Household Debt as % of GDP):

• 2015: 26–32%
• 2018–2020: 35–37%.
• 2021: 36.6%.
• 2023: 40%.
• 2024 (end): 41.9–42%.
• March 2025: 41.3% (RBI Financial Stability Report).

Loans for education, housing, or small businesses build future assets. But loans for consumption create no productive capacity. A growing number of households are using credit to pay for everyday expenses, such as groceries, utility bills, school fees, etc are only liabilities being paid off. 

The point is that as long as there are not many job cuts and global uncertainty, which brings down the flow of capital within the economy might be a major issue for the borrowers. On the other hand, falling savings rates are good as long as the same is being deployed in equity and commodity assets and not 100% into the consumption segment. But we find a different pattern where savings are depleting.

Key Trend Data Points:

• Household Gross Savings Rate (% of GDP):
• 2000–2011 average: ~22.9%.
• 2012–2023 average: ~18.4%.
• Recent years: Declined further amid post-pandemic shifts.

• Net Household Financial Savings (% of GDP) (gross financial savings minus liabilities/borrowing; a key indicator of funds available for investment):
• Pre-pandemic (2011–2019 average): ~7–8%.
• FY2021 (COVID peak): ~11% (precautionary surge).
• FY2023: 5–5.3% (near 50-year low).
• FY2024: 5.2–5.3%.
• FY2025 (Q4/Q1 data): Recovery to ~7.6%, supported by rising financial assets and stabilising liabilities.

• Gross Financial Savings (% of GDP): 10.9–11.7% in recent years (FY2023–2024), with deposits, insurance/pension funds dominating (69% of household financial wealth).

RBI cushion for the risk profile of borrowers is under the safe zone is a myth since the profile can change at any point in time.  A scenario like 2008 or slow GDP growth from 2011 to 2013 might be a major hiccup for the borrowers. Even a COVID-like situation might turn the tables upside down. Big billion-day sale offers have turned our homes into a storage house where we have stacked up things that we don’t even need. 

Further, it’s a fool's paradise to compare China and other countries with to GDP ratio of India. The Indian economy cannot be compared to these countries due to multifactor differentials.

The risk of borrowing is endless, and until the same is deployed in quality assets for asset generation, the same stands as a liability that will create havoc during uncertain times. Further, the borrowers' stability is a major issue and threat.

But why are such loans increasing?  The reason is that rural wage growth is slack, and urban segment growth is stagnant. The changes in NREGA lead to a significant dependency on loans as the penetration of smartphones increases the aspiration of life.

Some of this also reflects a shift in credit culture. The aggregate savings rate is down from a peak of 36% to about 30% of the GDP.

The borrower’s classification is also playing a pivotal role, where younger, salaried consumers are borrowing heavily against future income to sustain present lifestyles. At the same time, lower-income and rural households, facing stagnant earnings, are turning to gold and small personal loans to manage the essentials of their life.

The temptation of buying and the FOMO factor in consumption behaviour has created a major issue within society. This is reflected in the consumption boom based on borrowed capital and declining savings rates. It's high time to take cognisance of the same and change our behavioural pattern.

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