Debt or Destiny?

“Do not save what is left

after spending, but spend

what is left after saving.”

— Warren Buffett

There are some serious cracks lurking below the middle-class’ outward bravado and confidence, ones that quietly threaten to create fissures in India’s vaunted economic success mantra. The highways are congested with SUVs, more and more are getting international holiday visa stamps on their passports, digital wallets ping ceaselessly with transaction confirmations and news reports herald consumption milestones as proof of prosperity restored. Year after year, headline growth in Gross Domestic Product claims centerstage – and if the masses don’t pay obeisance and applaud, the media prods them to.

But beneath the visible optimism lies an unsettling structural shift. India’s households are borrowing more, saving less and consuming on credit rather than income. According to the latest Reserve Bank of India Financial Stability Report, household debt climbed to 41.3 per cent of the GDP by March 31, 2025, way above its five-year average. And most worrisome is the hard-nosed statistic that all this debt was led disproportionately by consumption-oriented retail loans, not productive investments.

The RBI figure is not merely a statistic. It reflects millions of individual decisions to take personal loans, instant credit, indulge in credit card swipes and buy-now-pay-later purchases, all of which inexorably and cumulatively reshape the very financial foundations of the aspirational middle-class.

The EMI Economy

The rise of monthly instalments has been a defining feature of India’s credit expansion. Month after month, millions of Indian families allocate significant chunks of their income to fixed loan repayments. Survey data from independent financial research suggests that around 33-45 per cent of salaries of many middle-class households go toward loan servicing obligations, insurance premiums and related costs. This leaves less room for savings, investments or contingency planning, deeply tightening and constraining financial flexibility and freedom.

The troubling paradox is that while EMIs make products affordable in isolation, in aggregate they can end up consuming a lethal share of monthly cash flow. Personal loans, once a small part of household borrowing, now constitute a lion’s share of credit, with personal credit forming 22.3 per cent of consumption-purpose loans as of September 2025, an unprecedented rise in unsecured borrowing.

Unlike housing loans – which typically finance long-term assets – or business loans that can generate income, most consumption debt simply sustains (or temporarily upgrades) lifestyles. The compact numerical difference between aspirational living and precarious leverage slips by almost unnoticed until a job loss, medical emergency or an interest rate rise suddenly exposes the fragility beneath.

Savings Slip, Buying Jumps

Historically, India’s middle-class has been a proud repository of thrift. Net household financial savings once routinely exceeded 10 per cent of GDP. Today, that figure has fallen to 7.6 per cent, a decades-low level. Although a recovery in savings was recorded in the October-December 2025 quarter, the underlying trend remains concerning; households are not generating surplus financial buffers at the pace required to underpin long-term security. Another estimate found household savings, including physical assets, had slipped to just 18.1 per cent of GDP, a multi-year low, as reliance on credit jumped.

The implications are profound. Savings are the first line of defence against economic shocks, be it inflation, job losses or health expenses. When those savings shrink, even small shocks begin to look threatening. And real income growth for many Indians has been modest at best, with wage increases in several sectors lagging sharply behind inflation and cost-of-living pressures.

The conventional defence from policymakers has been that India’s household debt level, even at 41 per cent of GDP, is moderate when compared with many emerging markets, and that banking sector asset quality remains reasonable. Official data shows that India’s household debt, while rising, is below levels seen in peer countries and that delinquencies have not surged precipitously at the system level.

Behavioural Blindspots

This numeric resilience masks underlying distributional and compositional concerns. The share of debt tied to wanton consumption exceeds 55 per cent of household borrowing. By their very definition, ‘consumption loans’ do not create assets; they simply underwrite current lifestyles. When one in every two rupees of household debt is used to sustain consumption, the question is not just the size of the debt, but its purpose and payoff. Add to this credit card debt and the stress on wallets only increases. Overdue bills have climbed sharply, with tens of thousands of crores of dues remaining unpaid for months. These are not statistical outliers, but symptomatic of deeper financial tension.

Ease of credit access – UPI-linked wallets, app-based loans and instant approvals – has outpaced the public’s financial understanding. Households are still learning to navigate interest regimes, compound costs, credit scores and repayment burdens. Research shows that ease of digital finance improves inclusion but also increases risk of households falling into unsustainable debt cycles without sufficient financial literacy. Despite an abundance of credit products, formal financial education is minimal. Most Indians learn about money the way they learn about driving – on the job. And often through costly mistakes. This learning path is expensive, both emotionally and financially. It can be bloody too.

Some Policy Imperatives

If households are to convert growth into sustainable prosperity rather than debt-fuelled fragility, policy action must be decisive and multifaceted. One, financial literacy must be scaled up. Practical money management, credit awareness and risk assessment should be core components of school curricula and adult education campaigns. Without these foundational skills, access to credit remains a double-edged sword. Two, the government and regulators must balance credit expansion with savings incentives. Tax sops for long-term savings products, matched contributions for low-income savers and easier access to pension vehicles would strengthen household balance sheets.

Let me put it simply – India needs to reward savings as much as it has incentivised borrowing.

Three, lenders must design credit responsibly. This involves transparent pricing, ‘loan-readiness’ assessments and measures to prevent over-indebtedness. Regulatory tightening on uncontrolled, unsecured loan growth, while necessary, is only a first step. Four, income growth and employment stability must become priorities. Wage growth will raise the capacity to bear debt without eroding savings. As one analysis points out, the persistence of borrowing, especially for consumption rather than investment, reflects stagnating wages in many sectors relative to rising household aspirations.

Borrowed Confidence

India’s rising household debt is not signalling immediate disaster, but it is surely lighting up a structural weakness that policymakers, economists and citizens have been slow to confront (or even admit). When savings dwindle, debt balloons and real income growth lags, financial stability becomes fragile not through sudden collapse, but through slow, invisible erosion.

India’s growth narrative may be grand, but currently it evolves from credit-fuelled consumption, not rooted in financial resilience. Clearly, the twin engines of credit and savings need balancing. There is also a burning need to educate citizens to identify risk too (not just easy opportunity) and shape a financial ecosystem where prosperity is earned, not borrowed. After all, while debt may accelerate destiny, it can also quietly and irreversibly distort the future. The path we choose – between borrowed poise and earned security – will determine not just macroeconomic trajectories, but the very stability of millions who believe they are climbing, when in truth they are walking a tightrope that is fraying.

The writer can be reached on [email protected]. Views expressed are personal. The writer is a veteran journalist and communications specialist