A profound financial shift is gripping India's middle class, moving the nation from a society of savers to one of prolific borrowers. Data reveals that net household savings have plummeted to their lowest point in nearly five decades, a situation driven not by a collapse in saving but by an explosive rise in consumer debt.
The Alarming Trajectory of Borrowing
Until 2019, the level of non-housing household debt in India was relatively comparable to that of other similar economies. However, the period following the COVID-19 pandemic has seen a dramatic divergence. India's non-housing household debt as a percentage of income has soared to 32% in FY25, a sharp increase from 23% in FY17. This surge has placed Indian households among the most indebted in the world for such consumption-led borrowing, even surpassing countries like the United States and China.
The Reserve Bank of India (RBI) has flagged that net household savings, calculated as savings minus borrowings relative to income, are at their weakest since 1977. The core issue is the relentless accumulation of financial liabilities. For many borrowers, the math is punishing: servicing this debt now consumes nearly 40% of their annual income.
Funding Lifestyle, Not Assets
The nature of this borrowing binge is particularly concerning. A significant portion of these loans is not for creating wealth or purchasing productive assets but for financing immediate consumption and lifestyle upgrades. Surveys indicate that nearly 50% of Indians are open to using personal loans to improve their current lifestyle.
According to data from consumer finance firms, the reasons for taking personal loans are telling. While home renovation tops the list, the second most common reason is funding vacations. More than a fifth of all personal loans are taken specifically for holidays, with salaried professionals constituting three-quarters of such borrowers. Purchases of consumer durables like mobile phones and televisions also rank high, while loans for assets like two-wheelers, cars, or houses are less prominent.
A Deepening Debt Trap
The consequences of this trend are severe and widespread. The borrowing pattern often involves multiple, simultaneous loans. The RBI's Financial Stability Review from June 2025 notes that 68% of individuals taking a small personal loan (under ₹50,000) already have more than three live loans at the time of origination. Furthermore, 12% of all borrowers have active loans from three or more lenders.
Compounding the problem is the cost of this debt. For prime borrowers, the effective interest rate across various loans often exceeds 10%. Meanwhile, middle-class household incomes are growing, at best, at a high single-digit rate. This creates a dangerous mathematical reality: for a large segment of the population, their debt burden is growing faster than their income, locking them into a persistent cycle.
Adding to the risk profile, the RBI's December 2024 Financial Stability Report highlighted that 45% of all borrowers are subprime, and close to half of their loan demand is for pure consumption purposes. The habit of using credit cards and EMI options for even small-ticket purchases has become entrenched, as seen in data showing a rise in the number of credit card transactions even as the average spend per card has declined.
This collective scenario paints a picture of a middle class navigating economic pressures and aspirational triggers by leveraging future income, often at high cost. The analysis, contributed by Saurabh Mukherjea and Nandita Rajhansa of Marcellus Investment Managers, underscores a silent crisis where the pursuit of immediate lifestyle upgrades is jeopardizing long-term financial security for millions.
