Indian Households Well Positioned for 6.5% Growth Over 3-5 Years: Morgan Stanley
Click to start listening
Synopsis
According to a Morgan Stanley report, Indian households are well positioned to sustain a 6.5% growth rate over the next 3-5 years. The report highlights manageable household debt and anticipates that income growth will drive this trend.
Key Takeaways
- Indian households poised for 6.5% growth.
- Current household debt levels are manageable.
- Retail loans have increased post-pandemic.
- Core household debt is lower than RBI's estimate.
- Income growth is vital for sustainable debt dynamics.
New Delhi, April 25 (NationPress) Households in India are strategically positioned to support a robust 6.5 percent growth over the coming 3-5 years, according to a report from Morgan Stanley released on Friday.
The current level of household debt in India is manageable, with household debt (core) remaining at lower levels compared to other economies. The report highlighted that even though it is expected to rise, the trend will be manageable due to income growth.
Concerns regarding rising indebtedness at the household level have emerged due to the recent uptick in retail loans. This has fueled discussions about increased household leverage, reduced net financial savings, and inconsistent income growth, resulting in heightened distress in household balance sheets.
The report pointed out that the surge in retail loans has significantly contributed to credit growth post-pandemic, raising alarms about potential over-leverage.
“To gauge household debt accurately, we believe that core household debt—comprising personal loans (exclusively to households) and credit from nonbank sources directed at households—is a more reliable metric. The RBI adopts a broader definition for household debt, which also includes unincorporated enterprises,” stated Bani Gambhir and Upasana Chachra from the India Economics team.
“Our assessment of household debt places it at 23.1 percent of GDP for FY2024, which is considerably lower than the RBI's estimate of 42.1 percent of GDP,” they added.
The decline in net financial savings provides only a partial view; while mortgage-led leverage has increased financial liabilities, it has also resulted in a rise in physical savings.
Overall, total household savings (both financial and physical) are projected to remain stable at 18.1 percent of GDP in FY2024, compared to 19 percent of GDP before the pandemic.
“Analyzing asset quality as an indicator of household stress, we observe that stressed assets in the personal loan sector have only seen a slight increase,” the economists remarked.
The report anticipates that household debt growth will continue to outstrip nominal GDP growth, reflecting enhanced credit penetration.
“The sustainability of the debt dynamics will hinge on income growth, which we believe will align with nominal GDP growth,” the report concluded.
