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MOSL: ECOSCOPE-Fathoming the ‘Depths of Debt’

ECOSCOPE: Fathoming the ‘Depths of Debt’

 

Debt size is a crucial determinant of financial stability in any economy. Unfortunately, though, in India, there has been no measure to learn about the country’s total debt owing to the unavailability of the official estimate of non-government non-financial (NGNF) debt. In this note, we thus attempt to bridge this gap and use data from various official sources to project India’s total debt. 

PRESENTING ESTIMATES OF INDIA’S NGNF, AND THUS, TOTAL DEBT

Our estimates suggest that India’s total debt stood at 149.8% of GDP (or USD3.9t) in FY18 – the highest-ever level. While government debt remained elevated at ~68% of GDP, NGNF sector debt was also at an all-time high of 81.4% of GDP in FY18. Within the NGNF sector, while the corporate sector deleveraged – debt down from the peak of 51% of GDP in FY14 to 48.3% in FY18, household debt touched a new peak of 33.1% of GDP in FY18. 

COMPARISON OF INDIA’S DEBT VIS-À-VIS 19 OTHER MAJOR NATIONS

A comparison of the debt statistics for 10 emerging markets (EMs) and 10 advanced economies (AEs) suggests that, although India’s government debt is the second-highest in the EM pack, its NGNF debt is on the lower side. Consequently, India’s total debt is at the middle of the debt range of major EMs. 

QUARTERLY ESTIMATES OF NGNF DEBT SUGGEST NO MAJOR SLOWDOWN

Apart from estimating India’s debt on an annual basis, we also project India’s NGNF debt on a quarterly basis. Quarterly debt statistics for the government sector, however, are not available. Notwithstanding the IL&FS default in late September 2018, NGNF debt in India continued growing unabated in 3QFY19, beating all the fears related to the adverse impact on India’s financial system. Although credit growth of ~18% YoY for NBFCs (including HFCs) was at a five-quarter low (albeit still strong) in 3QFY19, it was at a nine-quarter high (~12% YoY) for banks. Consequently, NGNF credit grew 13.3% YoY in 3QFY19, only marginally slower than 14% in 2QFY19 and much higher than sub-12% in FY17 and FY18.