UPSC Syllabus Topic: GS Paper 3 -Indian economy.
Introduction
Rising household indebtedness in South India reflects a complex economic pattern. It signals both greater financial access and growing reliance on credit. The trend invites attention to regional disparities, socio-economic factors influencing borrowing, and the broader impact of inclusive finance. Understanding these dimensions helps assess whether rising debt represents financial empowerment or emerging vulnerability in an increasingly credit-driven economy. The Case of Mounting Debt Pile in South India.
Current Status of Indebtedness in India
- Definition: Indebtedness counts any person aged 15 or above who owes ₹500 or more to a bank, cooperative, or informal lender.
- Coverage: In 2021, about 15% of adults had outstanding loans. This gives a clear, comparable baseline across states.
- Borrowing is concentrated in the South:
- Andhra Pradesh has the highest share, with over two in five adults indebted.
- Telangana (37.2%), Kerala (29.9%), Tamil Nadu (29.4%), Puducherry (28.3%), and Karnataka (23.2%) also sit above the national average.
- Older All-India Debt and Investment Survey data (2013–2019) also placed the South ahead.
- RBI’s Financial Stability Report notes higher debt-to-asset ratios in southern rural and urban households.
- Low-indebted states and UTs: Several regions show very low indebtedness. Delhi (3.4%), Chhattisgarh (6.5%), Assam (7.1%), Gujarat (7.2%), Jharkhand (7.5%), West Bengal (8.5%), and Haryana (8.9%) are at the lower end. These figures highlight wide interstate variation in household exposure to loans.
Indebtedness Connection to Other Parameters
- Income Level: As income rises, borrowing also increases. High-income households (top quartile) show almost double the indebtedness of the lowest-income group. Richer families often borrow more for consumption, investment, or asset creation, while poorer ones remain credit-averse or dependent on informal sources.
- Household Size: Smaller families tend to borrow more. Households with fewer than four members show 17.8% indebtedness, while large families (eight or more) show only 10%. Bigger families may rely on pooled income, reducing the need for loans.
- Occupation: The self-employed and regular workers borrow more due to business or lifestyle needs. Self-employed (32%), salaried (22.8%), and casual labourers (22.5%) show high exposure, whereas students, unemployed persons, and those with disabilities borrow the least.
- Social Groups: Borrowing differs by community and caste. OBCs (16.6%) are most indebted, followed by SCs (55% higher likelihood), while STs (11%) are the least indebted.
- Religious Groups: Among religions, the likelihood of borrowing is 12% lower among Muslims and 15% lower in other faiths compared to Hindus.
- Age: Middle-aged adults (30–59 years) are most indebted as they handle household and career responsibilities.
- Marital Status: Married men from high-income families record the highest indebtedness, showing the link between family obligations and credit use.
Financial Inclusion Across Regions
- Overall reach: Financial access is broad but uneven across India. In 2020–21, 87.2% of people aged 15 and above had an account, and national coverage remains above 87%.
- Leaders among larger states: The South is ahead. Karnataka 95.9%, Andhra Pradesh 92.3%, Tamil Nadu 92%, Kerala 91%. Chhattisgarh 91.1% also performs well.
- Lower coverage: Meghalaya 65.5% marks the lower end, showing large interstate gaps that persist despite overall gains.
- Small states and UTs near universal: Several smaller states and Union Territories are close to universal access. Andaman and Nicobar Islands record 97.5%, Dadra and Nagar Haveli 96.35%, Goa 95.8%, Himachal Pradesh 95.6%, and Puducherry 95.4%.
Conclusion
Southern indebtedness mirrors economic dynamism supported by financial inclusion, yet it demands balance and oversight. Strengthening credit discipline, improving financial literacy, and ensuring equitable access across regions can sustain this growth without triggering distress. The goal is to keep credit empowering, not burdensome, within a responsible and inclusive financial system.
Question for practice:
Examine the factors contributing to high household indebtedness in South India and assess the role of financial inclusion in this trend.
Source: The New Indian Express
