Debt isn't lethal. It's the dose that makes the poison. Ask South India.
Individuals and households here are the largest borrowers in the country. Interestingly, they have been at the top of the debt heap for over a decade now.
In particular, the two Telugu-speaking states of Andhra Pradesh and Telangana have far more debt than the national average, while the neighbouring states of Tamil Nadu, Kerala and Karnataka are also close behind on the country's household debt map.
According to the Ministry of Statistics and Programme Implementation's (MoSPI) biannual journal Sarvekshana, in 2021, more than two in every five adults in AP were indebted -- the highest in India. Telangana comes next at 37.2%, followed by Kerala at 29.9%, Tamil Nadu at 29.4%, Puducherry at 28.3%, and Karnataka at 23.2%.
In contrast, the low indebted states include Delhi at 3.4%, Chhattisgarh 6.5%, Assam 7.1%, Gujarat 7.2%, Jharkhand 7.5%, West Bengal 8.5%, and Haryana 8.9%.
Interestingly, southern states have been at the front of the debt queue even during 2013-2019, as old data from the All-India Debt and Investment Survey showed. Separately, as the RBI’s latest Financial Stability Report shows, the five southern states have a higher debt to asset ratio than the national average for rural and urban households. Much of the borrowing was from unsecured retail loans such as credit-card loans, personal loans, auto loans, and gold loans.
The debt pile seems to be mounting with each clock tick, but it isn't sending up distress flares yet. Rather, it's seen as a sign of higher incomes, better access to banking credit and relatively superior credit-to-deposit ratio than the rest of the country.
In fact, MoSPI data also shows that the level of financial inclusion was highest in the southern region with Karnataka leading the pack at 95.9%, followed by Andhra Pradesh at 92.3%, Tamil Nadu 92%, Chhattisgarh 91.1%, and Kerala 91%. Financial inclusion is a state where all working age adults have effective access to credit, savings, payments and insurance from formal service providers and such access is convenient, timely and affordable.
It means that households in southern states have higher per capita income, high disposable income and more assets, combined with greater financial inclusion. Their credit-to-deposit ratio is higher than the rest of the country, encouraging lenders to lend more.
Meanwhile, at the national level, about 15% of adults had outstanding loans in 2021. The study defines an indebted person as anyone aged 15 or above who owed at least Rs 500 to a bank, cooperative, or informal lender at the time of the survey. It also finds a direct link between indebtedness and economic status (rich households taking more debt) and an inverse relationship between indebtedness and household size.
For instance, smaller families tend to take more debt, and so do married men from high-income households, who have the highest indebtedness. Indebtedness was 9.3% for 1st quartile households, compared to nearly double in 4th quartile households at 18%. For larger family size households of above eight, indebtedness was 10%, whereas for smaller family households of less than four persons per home, it was 17.8%.
Likewise, while self-employed, salaried workers, and casual labourers too are highly indebted at 32%, 22.8%, 22.5% respectively, students, unemployed and persons with disabilities borrow the least.
On the other hand, women, large family size households, Muslims and other minority community members borrowed relatively less.
Indebtedness was also highest among OBCs at 16.6% and the least among STs at 11% and not much difference was observed among other religious groups. As for age groups, indebtedness was at the lowest level among those between 15 and 29, but considerably higher in middle age group of 30-44 years and 45-59 years.
Within social groups, indebtedness was 55% higher among the SC population, and 74% higher among OBCs. The likelihood of indebtedness was 12% lower among Muslims, and 15% lower in other religions compared to Hindus. With increase in household size, the likelihood of indebtedness declines. It was 15% lower in medium-size households, 26% lower in larger size households compared to smaller size households.
Meanwhile, the study finds statistically significant variations in the extent of financial inclusion across socio-economic-demographic groups. While over 87% of the national adult population is financially included, the progress ranges from 95.9% in Karnataka to 65.5% in Meghalaya.
Finance is a key driver of economic activity. The World Bank defines financial inclusion as a state in which individuals and businesses, especially those who are underserved or excluded, can access and use affordable, financial services like savings, credit, insurance and payment systems.
In 2020-21, at the all-India level, 87.2% of the population aged 15 and above were having an account in a bank, financial institution or mobile-money service provider. Among smaller states and Union territories, Andaman and Nicobar Islands was close to universal financial inclusion at 97.5%, followed by Dadra Nagar Haveli at 96.35%, Goa 95.8%, Himachal Pradesh 95.6% and Puducherry 95.4%.
