Surging household debt a major concern

Mumbai: The economists at the country's largest lender, State Bank of India (SBI), have expressed concerns over sharp increase in household debt during past one year.

"One of the worrying features is the increase in household stress. Household debt (after taking into account retail loans, crop loans and business loans from financial institutions, viz., commercial banks, credit societies, NBFCs and HFCs) has sharply increased to 37.3 per cent of GDP in FY21 from 32.5 per cent of GDP in FY20," says the report published by Ecowrap, an in-house economic journal of SBI.

The decline in bank deposits in FY21 and the concomitant increase in health expenditure may result in further increase in household debt to GDP in FY22

"India's household debt to GDP ratio is still lower than other countries, though we need to supplement wage income as a percentage of GDP that has been declining," says Soumya Kanti Ghosh, chief economic advisor to the SBI group.

If we proxy employee expenses as wage income, as percentage of corporate GVA for our sample of 3973 listed companies, it has come down to 30.6 per cent in FY21 from 34.1 per cent in FY20, he added.

Various indicators, as per the report, show improvement in economic activity in June 2021. SBI business activity index shows significant improvement in activity since May-end with the latest reading for the week ended June 28, 2021, of 91.8 level.

PV sales increased as visible in various companies' data. Replacement demand and increase in inventories apart from a pick-up in demand could be the possible reasons for such an increase.

Covid-19 has impacted lives and livelihood across the economies and business sectors. The trends of deposits during first wave (March-December 2020) of Covid-19 as revealed by ASCBs data from RBI for 711 districts across all States/UTs show deposit outflows from 112 districts at Rs 1.06 lakh crore.