India’s middle class — long celebrated as the engine of its economic transformation — is facing a rising debt burden that threatens to derail the country’s ambitions for sustained high growth. While India remains one of the world’s fastest-growing economies, with GDP expansion forecast around 6.5% this year, cracks are emerging beneath the surface. At the heart of the concern: surging unsecured household debt and an overstretched middle-income group struggling to stay afloat.
Over the past five years, access to consumer credit has exploded. According to the Reserve Bank of India (RBI), household debt stood at around 43% of GDP by mid-2024, sharply up from just over 35% in March 2020. Much of this rise has been fuelled by easy digital lending, credit cards, and "buy now, pay later" schemes. As noted by Bloomberg, India's retail credit segment grew more than 30% annually in 2023 alone. Initially seen as a positive signal of rising consumption and economic inclusion, the boom in unsecured lending has now morphed into a systemic risk.
The problem is that wage growth has failed to keep pace. Data from Marcellus Investment Managers shows that middle-class incomes have largely stagnated over the past decade, while inflation — especially in essential goods like food — has remained stubbornly high. The result is predictable: more Indians are borrowing not for luxuries, but for everyday survival. In a country where social stigma around debt remains strong, this trend has introduced not only financial, but psychological strain.
Reports from the Indian Express highlight that non-performing loans (NPLs) in the unsecured retail sector are climbing. Delinquencies of over 90 days on personal loans rose to 5.2% by late 2024, compared to around 2% pre-pandemic. Credit card defaults have also spiked sharply. This deterioration has been particularly acute among urban middle-class borrowers, who were aggressively targeted by financial institutions during the post-pandemic consumption surge.
Recognising the risks, the RBI introduced tighter regulations in November 2023, including raising risk weights on personal loans and credit card exposures. This move was aimed at forcing lenders to be more prudent. However, as S&P Global notes, tightening credit conditions have left many already-indebted households with fewer lifelines, exacerbating financial distress.
The social consequences are serious. Karnataka’s state government recently passed legislation to curb aggressive loan recovery practices, following a series of borrower suicides linked to harassment by debt collectors. Financial literacy gaps have also become glaring: a PwC-Perfios survey in 2024 found that Indian consumers now spend on average 33% of their income servicing equated monthly installments (EMIs), often without fully understanding the long-term financial risks.
Meanwhile, India’s economic policymakers are grappling with a broader dilemma. Prime Minister Narendra Modi’s vision of lifting India to developed-country status by 2047 depends heavily on expanding the middle class. But if middle-class consumers are increasingly burdened by debt rather than driving demand, growth targets could become difficult to meet. Economists at the IMF warn that consumption-driven economies like India are vulnerable if household balance sheets deteriorate.
What makes India’s situation particularly precarious is the "financialization" of savings. With interest rates on traditional savings low, many middle-income households have turned to riskier financial instruments — stock market investments fueled by borrowed money — to maintain their wealth. As global interest rates rise and market volatility increases, the risks of a cascading financial shock grow.
Addressing this looming crisis will require more than just regulatory tweaks. It will demand broader structural reforms: enhancing job creation, improving financial literacy, strengthening consumer protection laws, and building safer, more transparent lending ecosystems.
The promise of India's middle class is real — but without meaningful efforts to relieve their growing financial burdens, that promise risks turning into a cautionary tale. The resilience of India's growth story depends not just on expanding GDP figures, but on ensuring that prosperity reaches households in a sustainable, equitable way.