COVID-19: Average household debt doubled in 3 years, says Report

As per the projections made by SBI Research, the average household debt among rural households increased from Rs 59,748 in June 2018 to Rs 1,16,841 after COVID-19, an increase of Rs 57,093 or 95 per cent, writes ETV Bharat's Krishnanand Tripathi.

New Delhi:The outbreak of the COVID-19 global pandemic, which has killed more than 4.4 lakh people in the country and over 46.6 lakh people worldwide, has had a devastating impact on the finances of average Indian households. The average household debt — both in urban and rural areas — nearly doubled in the last three years, according to SBI Research.

According to State Bank of India's Chief Economist Soumya Kanti Ghosh, the primary reason behind a sharp rise in the household debt burden during the last three years was the adverse economic impact of COVID-19, which caused a decline of 7.3 per cent in the country's GDP in the last financial year.

"We project that household debt in rural and urban areas might have doubled in 2021 from the 2018 levels," said Ghosh.

As per the projections made by SBI Research, the average household debt among rural households increased from Rs 59,748 in June 2018 to Rs 1,16,841 after COVID-19, an increase of Rs 57,093 or 95 per cent.

Similarly, in the case of indebtedness among the urban households, the average loan size went up from Rs 1.2 lakh in June 2018 to nearly Rs 2.34 lakh post COVID-19, again an increase of 95 per cent. Ghosh said the trend is also reflected in the household debt to GDP ratio.

"The COVID-19 pandemic has resulted in a spike in household debt to GDP rate. As per our estimates, it rose sharply to 37.3% in 2020-21 from 32.5% in 2019-20," he wrote in his report.

Debt and Investment Survey 2018

As per the All India Debt and Investment Survey of 2018 (AIDIS 2018), which was released by the government last week, the average amount of debt among rural households was Rs 59,748 in June 2018 and in the case of urban households, it was over Rs 1.20 lakh.

The latest data showed that the indebtedness of both rural and urban households increased significantly in comparison with the level of indebtedness reported in 2012. In 2012, the average debt burden on a rural household was Rs 32,522, which went up to Rs 59,748 in June 2018, an increase of 84% in the six-year period.

Similarly, in the case of urban households, the average debt burden increased from Rs 84,325 in 2012 to Rs 1,20,336 in June 2018, an increase of nearly 43 per cent.

Sharp rise in rural debt burden in 16 states

The data released by the All India Debt and Investment Survey (AIDIS) also showed that the average rural household debt more than doubled in 16 states for the six-year period that ended in 2018.

Similarly, there were eight states where the average urban household debt more than doubled during the same period.

More importantly, there were five states — Punjab, Rajasthan, Assam, Nagaland and Mizoram — that reported more than 100 per cent increase in the household debt among both urban and rural households.

SBI Research said the debt-asset ratio, which is an indicator of household indebtedness, increased from 3.2 in 2012 to 3.8 in 2018 for rural households and from 3.7 to 4.4 for urban households.

Kerala, Madhya Pradesh and Punjab were the three states that witnessed the deterioration of at least 100 basis points in debt asset ratio over the six-year period ending 2018.

The debt-asset ratio shows the amount of debt as a percentage of the assets held by a household. While the average value of household assets was Rs 15.9 lakh for a rural household in June 2018, in the case of urban households, the average asset holding was Rs 27.2 lakh during the same period.

The AIDIS survey conducted by the National Sample Survey Organisation (NSSO) covered 69,455 households in 5,940 villages in rural areas and more than 47,000 households in 3,995 blocks in urban areas.

It showed that 35 per cent of rural families and 22.4 per cent of urban families reported being under a cash-loan debt burden in 2018.