Halftime in football is meant for regrouping, reassessment and a change of strategy if needed by both the winning and the losing side. In the financial world, there are as many halftimes as there are financial years across the globe but at the risk of oversimplification, we would follow the footsteps of the Gregorian calendar and note that half of 2026 is already behind us and this calls for our own halftime assessments.
Let’s start at home and that means the Indian household. The Reserve Bank of India’s (RBI) financial stability report earlier this week gave a decent summary of what the Indian economy has been through and what can be expected. A succinct one-line summary would be that we are were about to shoot a goal but were smothered by the opposite team’s defence. We are in great shape, but we are no Cristiano Ronaldo.
That goes for the average Indian household as well. Household debt has been climbing steadily over the past decade and has reached 45.5 percent of gross domestic product as of September last year. A neat index (with March 2019 as the base year) by the RBI shows that household borrowings are driven by consumptionloans.Non-housing retail loans almost quadrupled between March 2019 and March 2026 while housing loans rose 2.4 times, the index shows.
In short, Indians are borrowing just to consume and not to create wealth or assets. OurChart of the Daycaptures this worrying trend.
But why should it worry us? After all the hallmark of Indian economic heft is that it is consumption driven which enables its producers to earn a decent profit and attracts foreign investment. Also, the banking regulator has tamped down on runaway increases in risky unsecured retail loans and the stress seems to be contained now.
Granted, household balance sheets are resilient and even at 45 percent of GDP, India is the median in terms of household borrowings among Asian economies. But there are enough historic episodes to suggest that consumption-led borrowings seldom end well. For now, there are many red flags that should rattle policymakers.
Firstly, wage growth has been modest even in the best of times. If households are borrowing just to maintain their lifestyle even as their income barely covers inflation over the years, the household balance sheet will feel the heat soon.
Secondly, credit scores do not reflect the complete household balance sheet health. The RBI’s financial stability report shows that income is an accurate prediction rather than credit scores as the latter is more of an adaptive metric as we pointed outhere.
Finally, income prospects aren’t bright even though official unemployment data may show a healthy job market. The onslaught of AI which has led to widespread layoffs in tech firms, fintechs, and even startups indicates that jobs would be hard to come by. It is not apocalypse yet, but it would be far from a walk in the park. Manas Chakravarty wroteherewhat AI can do to labour markets, according to a BIS report.
In the short term or in other words the current fiscal year, an El Nino effect on the monsoon is another sword hanging over rural India. Unsecured personal loans have been replaced with skyrocketing growth in gold loans. Gold is an asset used for emergency purposes and the fact that the recent surge in gold prices is making existing borrowers take larger-sized loans shows that households are still caught up in their consumption.
For a developing nation to edge towards a developed one, it needs not just per capita income increase but a sizeable improvement in a host of other metrics. Neelkanth Mishra, chief economist at Axis Bank in his newspaper column details how India can reach the coveted developed nation by 2047. India must ensure its women participate in formal work but the main driver in reaching the high-income milestone is faster capital formation. Bank credit must flow to small businesses that can create capacity and jobs.
What can the Indian household do? It is a no-brainer that creating assets boosts long-term income. Households must be encouraged to borrow for asset creation rather than consumption. Mishra also advocates a fiscal policy that encourages innovation and entrepreneurship. Investments in science and technology is critical to avoid the middle-income trap that most Latin American economies found themselves in.
That brings us to India’s burgeoning startups where we have made a name in 10-minute delivery but are nowhere known on cutting edge tech. R Srinivasan in hiscolumn here details why public policy is failing here.
As we move to the second half of 2026, policymakers must come out from their assumption that consumption growth is the panacea for the Indian economy’s struggles. If India merely continues to provide consumers to multinationals, the cup of Viksit Bharat would be hard to come by.
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