Indebtedness on the rise, hits peak among OBCs

Low interest rate and easier availability of credit has increased the Indian household sector’s appetite for borrowing. Notwithstanding, the growth seen in household borrowings has not kept pace with repayments, resulting in growing indebtedness levels both in rural and urban India.

The overall indebtedness levels are the highest among OBCs, followed by schedule castes, the general category, and finally the schedule tribes.

The aggregate amount of debt has increased in the range of 14-15% CAGR over the last twenty years both in rural and urban India. Moreover, the incidence of indebtedness or the percentage of people under debt was a lot higher in rural than in urban India.

The OBC category had the highest incidence of indebtedness of 28.9% and 17.8% in rural and urban India respectively, which is much higher than the national average. In fact, the overall incidence of indebtedness was much higher in the OBC category than any other caste, with the schedule tribes reporting the lowest amount of debt. The incidence of indebtedness measures the number of households reporting the existence of outstanding cash and loans at a particular point of time.

The quantum of cash borrowings is a primary reason for the higher indebtedness levels being seen in the OBC category. 23.2% of the OBC households reported cash borrowings in rural India, which was about 3% above the all India rural average. Similarly, 20% of the OBC households reported cash borrowing in urban India, which was about 5% above the national average.

Perhaps another reason for the high indebtedness in the OBC category is dependence on non-institutional sources of lending in rural and urban India, with both agricultural and professional money-lenders forming the major source of credit to the OBC and other categories.

Most of the loans or borrowings seem to have been undertaken for unproductive household expenditure. However the general category showed the greatest bend towards taking loans and credit for productive purposes.