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MOSL: ECOKNOWLEDGE-Indian household sector vis-à-vis foreign counterparts – Part II

ECOKNOWLEDGE: Indian household sector vis-à-vis foreign counterparts – Part II

 

• In Part-I of the III-part series , we discussed the balance sheet of Indian households, wherein we concluded that private consumption growth has outpaced income growth at a time when household savings have fallen to the lowest level in more than two decades and total debt (institutional + non-institutional) has risen to an all-time high. Households’ financial net worth (financial assets minus financial liabilities), we argued, has risen in recent years but is still lower than the levels witnessed between FY04 and FY11.
• In this note, we compare Indian households’ balance sheet vis-à-vis their counterparts in several emerging market (EM) economies (Brazil (BR), China (CH), South Korea (KR), Russia (RU), South Africa (SAf), Taiwan (TW) and Turkey (TY)) and developed economies (Australia (AU), Canada (CA), Germany (DE), France (FR), Italy (IT), Japan (JP), Spain (ES), UK and USA).
• There are three key findings. First, although Indian household debt (institutional and non-institutional), as we argued in Part-I, has risen to an all-time high of ~48% of their disposable income, it is much lower than in most EMs and all developed economies.
• Second, the level of financial debt is directly linked with financial assets, and thus, financial net worth (financial assets minus financial liabilities). Not only Indian households’ debt is among the lowest but gross financial assets are also among the lowest. Consequently, financial net worth of Indian households is also among the lowest compared to other EMEs and developed economies. This puts a direct constraint on rapid expansion of household debt in India.