Household Debt Increases in 2021 Due to COVID-19

Due to the COVID-19 pandemic, there has been an acute increase in household debt. According to the estimates provided by SBI, the household debt stood at 32.5% in 2019-20; in 2020-21, it increased to 37.3%. As per SBI estimates, the household debt in rural and urban areas could have doubled in 2021 in comparison to the 2018 levels due to the pandemic.

The indicator of household indebtedness, the Debt-Asset ratio concerning rural households, stood at 3.2 in 2012; it increased to 3.8 in 2018. The Debt-Asset ratio concerning urban households increased to 4.4 from 3.7. Kerala, Punjab, and Madhya Pradesh witnessed a minimum of 100 bps deterioration in the debt asset ratio over the 6-year period ended in 2018. 

As per the recently-released 2018 India Debt & Investment Survey (AIDIS) report, there is an increase in the average amount of debt in rural and urban households, with the average debt amount increasing by 42% and by 84%, respectively, for urban and rural households respectively for a 6-year period ended 2018. 

The trend across states highlights that the average debt of rural households’ doubled in 18 states concerning the 6-year period ended 2018; on the other hand, seven states recorded the same average debt for urban households. Five states, including Rajasthan, Maharashtra, and Assam, recorded a simultaneous doubling in the average debt in rural and urban households during this period.

In rural India, the outstanding cash debt percentage from non-institutional credit agencies has decreased significantly from 44% in 2012 to 34% in 2018. It is evident that most states have witnessed a sharp decline in non-institutional credit amidst rural areas, highlighting the rise in the formalisation of the economy.

The percentage of non-institutional credit has decreased significantly in West Bengal, Bihar, Haryana, Rajasthan, and Gujarat. Even in Rajasthan and Haryana that saw loan waiver schemes, the percentage of non-institutional credit decreased contrary to general perception.

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