Indian households to face more stress in FY22 with increasing debt: SBI Research

Financial stress on Indian households has worryingly increased with their debt-to-gross domestic product rising sharply, and the situation is likely to worsen this year due to the second wave of the pandemic, said a SBI Research report, while making out a case for fiscal policy action.

The report said Covid-19 cases could again start increasing mid-August.

Household debt-to-GDP climbed to 37.3% in fiscal 2021 from 32.5% the year before, SBI Research said. It expects the situation to worsen this year as a decline in bank deposits in FY21 coupled with rising health expenditure would pile on the debt for households.


The decline in bank deposits was indicative of a fall in household financial savings rate, it pointed out in the report released on Monday.

This called for fiscal policy action as India’s wage income as a percentage of GDP has been declining, to 30.6% in FY21 from 34.1% in FY20, according to Soumya Kanti Ghosh, SBI’s group chief economic adviser.

At the same time, Indian industry’s profit after tax as a percentage of gross value added has grown substantially to 23.7% in FY21 from 13.4% in FY20.

“Significant corporate deleveraging also happening simultaneously (Rs 1.7 lakh crore reduction), fiscal policy and vaccination must,” Ghosh said via a Twitter update.

Third Wave
On the pandemic front, SBI Research warned that the third wave could begin as early as mid-August, reaching a peak of about 1.7 times the second wave, based on international experience.

The report noted that the second wave was not yet over with about 45,000 daily Covid-19 cases still being recorded in the country.

Despite an increased vaccination pace, India had fully vaccinated only 4.6% of the population as of Monday. About 20.8% of the population was provided one dose.

Fresh cases in the 15 worst-affected districts, which were largely urban, had recorded an increase in June while the share of rural districts in new cases had declined only modestly during that month.

SBI Research said this was concerning given the lack of adequate health infrastructure in rural areas.

Economic activity has shown strong improvements since May-end, with a robust recovery in weekly vegetable arrivals, revenue collection at regional transport offices and the Apple Mobility Index, despite a declining labour participation rate, the report said.

Demand had also improved as evidenced by an increase in passenger vehicle sales at the dealership level, it said.