Household Debt may have declined to 34% in Q1 FY22: SBI Report

The household debt as a percentage of gross domestic product may have declined to 34% in the first quarter of 2021-22 with the commensurate rise in GDP in the first quarter, though it has increased in absolute terms, the household debt has increased to Rs 75 lakh crore in the first quarter of FY22 from Rs 73.59 lakh crore in FY21, a report of State Bank of India's Research says. The COVID-19 pandemic has resulted in a spike in household debt to the GDP rate. As per the report, it rose sharply to 37.3 percent in 2020-21 from 32.5 percent in 2019-20.

The good thing is that in rural India, the share of outstanding cash debt from non-institutional credit agencies has declined significantly to 34% in 2018 from 44%in 2012. Notably, almost all states have registered a steep decline in non-institutional credit in rural areas, indicating the increase in formalisation of the economy.

The share of non-institutional credit has declined significantly in the case of Bihar, West Bengal, Rajasthan, Haryana and Gujarat. In Haryana and Rajasthan, which witnessed loan waiver schemes, the share of non-institutional credit declined contrary to popular perception, it said. This could be explained by a significant increase in penetration of KCC (Kisan Credit Cards) in these two states.

Whereas, the number of KCC cards has jumped by 5 times over the 7 year period ended 2020. The report believes that the recent reforms in agriculture could further help in the formalisation of the economy, despite the political cacophony.