Households’ debt surged between 2012 and 2018, then COVID-19 likely doubled it, says survey

Rural households’ average debt grew from ₹32,522 in 2012 to ₹59,748 by June 2018, while that of urban households increased by 42% in the same period to a little over ₹1.20 lakh, according to the All India Debt & Investment Survey

Published - September 15, 2021 02:31 pm IST - NEW DELHI:

The number of indebted households have risen sharply in rural India, with average debt shooting up by 84% between 2012 and 2018, and the COVID-19 pandemic has likely further doubled all households’ borrowings by 2021.

Rural households’ average debt grew from ₹32,522 in 2012 to ₹59,748 by June 2018, as per the All India Debt & Investment Survey (AIDIS) conducted by the National Statistical Office (NSO) over 2019, while urban households’ average debt increased by 42% in the same period to a little over ₹1.20 lakh.

The number of households in debt as measured by the incidence of indebtedness among surveyed households had risen to 35% in rural India from 31.4% in the previous survey, while it remained static at 22.4% for urban households.

“We project that household debt in rural and urban areas might have doubled in 2021 from the 2018 levels,” SBI group chief economic adviser Soumya Kanti Ghosh said in a report on Wednesday, estimating that rural household debt increased to ₹1.16 lakh and urban households’ debt to ₹33 lakh. “This indicates that COVID impacted households significantly,” he said.

As of June 2018, the average debt in indebted rural households was a tad over ₹1.70 lakh, with cultivator households reporting a higher debt of nearly ₹1.85 lakh. Among indebted urban households, the average debt was almost ₹5.37 lakh with self-employed households averaging higher with about ₹6.53 lakh of loans.

Except Goa and Sikkim, the rural households’ average debt has increased in all other States with more than 200% increase in some of the States, which projects a further rise in debt levels in the wake of the pandemic.

Highlighting the pandemic’s hit, SBI estimated that the household debt to GDP level rose sharply to 37.3% in 2020-21 from 32.5% in 2019-20. Though this declined to 34% in the first quarter of 2021-22, as the overall GDP resurged, in absolute numbers, households’ debt has increased to ₹75 lakh crore by June this year, from ₹73.59 lakh crore in the last financial year.

These debt levels, however, only tell part of the story, as the debt to assets ratio of households deteriorated as well, indicating greater potential distress in servicing the debt. This ratio rose from 3.2 in 2012 to 3.8 in 2018 for rural households, with urban households reporting a ratio of 4.4 from 3.7 in 2012.

State-wise trend

“The State-wise trend for rural households indicates that though the ratio has declined in 11 States in 2018, it was still high in some States like Kerala (9.7) and Andhra Pradesh (9.1),” said the SBI economist.

In 2012, Kerala’s debt to asset ratio for rural households was 5.4, so it almost doubled in the six-year period. By contrast, Tamil Nadu recorded a decline in the ratio from 6.8 to 5.6, while Andhra’s elevated ratio of 9.1 was better than the 14.1 recorded in 2012.

The debt to asset ratio for rural households doubled in five States, including Gujarat and Haryana, while the same was true for urban households in another five States — Maharashtra, Punjab, Assam, Chhattisgarh and Nagaland.

“The State-wise trend for urban households is more encouraging as 14 States exhibited decline in debt-asset ratio in 2018, indicating low indebtedness,” Mr. Ghosh said.

Odisha and Uttar Pradesh recorded the sharpest declines in the urban indebtedness to asset ratio, with the former dipping from 14.7% in 2012 to 2018 and Uttar Pradesh recording 2.2% compared to 4.5% earlier.

The average urban household debt in Uttar Pradesh also declined from ₹87,000 to ₹61,000, but rural households saw an 80% spurt from around ₹22,000 to ₹40,000 over the 2012 and 2018 period. The debt to asset ratio for rural Uttar Pradesh households increased only marginally from 2.1 to 2.2.

SBI’s economic research team, however, reckoned that the rural India may be worse off than the numbers suggest.

Loan waivers

“A serious concern is that even States with low household debt are going for loan waivers. Further, States are implementing loan waivers irrespective of the debt-asset ratio of households and hence the extent of rural woes may be more than we anticipated,” Mr. Ghosh said.

Of the major crop producing States, nine States have more than national average debt, of which six have announced a farm loan waiver since 2014 with Rajasthan and Karnataka announcing it twice, the report noted.

One of the silver linings from the official survey was decreasing share of outstanding cash debt from non-institutional credit agencies in rural India, which fell 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,” Mr. Ghosh noted.

The National Sample Survey was carried out by the NSO over two visits, the first between January and August 2019, and a second time between September and December 2019, from the same set of sample households. “The survey was spread over 5,940 villages covering 69,455 households in the rural sector and 3,995 blocks covering 47,006 households in the urban sector,” the NSO said.

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