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India’s debt growth remains subdued in 4QFY21

Household debt continues to grow; corporate debt very weak

* India’s non-financial sector (NFS1 ) debt grew 11.8% YoY in 4QFY21 (or FY21), marking the highest growth in nine quarters and higher than the record low of 8.0% in 4QFY20 (or FY20). Outstanding NFS debt increased to a fresh high of 177.6% of GDP (or INR351t) in FY21 vis-à-vis 154.1% of GDP in FY20 (INR314t).

* Within NFS, general government debt (center + states) grew at an all-time high of 20.1% YoY in 4QFY21, while nongovernment non-financial (NGNF) debt grew at a record low of just 4.5% YoY. Within the NGNF sector, household debt grew at a decent 10.5% YoY in 4QFY21 (v/s 11.1% in the previous quarter) and non-financial corporate (NFC) debt grew just 0.4% YoY, below 0.9% in the previous quarter – marking the slowest ever growth.

* An analysis of NGNF debt by lenders suggests bank lending and external commercial borrowings (ECBs) weakened in FY21, while the loan book for NBFCs and HFCs grew much faster than in FY20. Lending by scheduled commercial banks (SCBs) to the NGNF sector grew at a record low of 4.5% YoY in FY21, and lending by NBFCs/HFCs grew 8.8%/4.9%. ECBs, on the other hand, contracted 6.1% last year, while borrowings through CBs grew faster at 9.5% in FY21.

* A comparison with certain other major economies (the US, the UK, Japan, and China) suggests that while the debt-toGDP ratio has risen across nations, the highest increase has been observed in India (up 15% to 177.6% of GDP). However, the rise in India’s NGNF debt has been among the lowest vis-à-vis the other nations. Such weak NGNF debt growth, along with the adverse impact on household income, raises serious doubts over the strong recovery in economic activity.

India’s NFS debt grew 11.8% YoY to reach 177.6% of GDP in 4QFY21: Our estimates suggest India’s NFS debt stood at INR351t in 4QFY21 (or FY21), up from INR314t in FY20 and INR337t in 3QFY21. As much as four-fifths of the increase in NFS debt in FY21 was attributable to the government sector – as corporate debt was broadly stagnant and household debt growth was stable at 10.5% (Exhibit 1). India’s NFS debt grew 11.8% YoY in 4QFY21 – the highest in the past nine quarters and above the record low growth of 8% YoY reported in 4QFY20 (Exhibit 2).

As the nominal GDP contracted 3% in FY21, India’s NFS debt rose to a record high of 177.6% in FY21 v/s 154.1% of GDP at the end of FY20 (Exhibit 3). Almost a fifth of the rise in the debt-to-GDP ratio – amounting to 22.5 percent points (pp) of GDP – is attributable to lower GDP and another ~62% to government debt.

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