India’s Consumption Growth Faces Pressure as Household Borrowing Outpaces Income Gains

A surge in household borrowing and rising loan repayments are creating new financial pressures for consumers across India. While robust consumer spending continues to drive economic growth in the world's fastest-expanding major economy, cheaper loans and expanded access to credit have caused borrowing to rise significantly faster than incomes and well-paying jobs.

According to central bank data, household borrowing surged by 36% in the year through March, pushing consumer debt to a record 46% of gross domestic product. Figures from the Centre for Social and Economic Progress indicate that borrowing grew roughly four times as fast as disposable income in 2025-26. Meanwhile, average earnings for regular salaried workers increased by less than 4% in real terms over the three years through 2025, according to data based on the Periodic Labour Force Survey.

The expansion of India's digital-lending industry has opened new channels for small-ticket borrowing. Loans below 100,000 rupees now account for more than two-thirds of digital lenders' portfolios, compared to 55% three years ago. This increased credit access has allowed consumers to fund lifestyle purchases, daily expenses, and medical costs, but it has also led to higher debt servicing burdens. CLSA estimates that about 13% of household income in the year through March 2025 was used to service debt, up from 10% to 11% for much of the previous decade.

Signs of financial strain are becoming visible in specific segments. Borrowing against gold jewelry—a traditional method for Indian families facing financial distress—jumped nearly 45% in the year through March, according to India Ratings and Research. Major non-bank lenders, including Bajaj Finance and Piramal Finance, have reported that distressed borrowers are increasingly taking out gold loans to stay afloat on credit facilities that have already defaulted elsewhere.

Consumers are also facing rising interest rates. The Reserve Bank of India raised its benchmark rate to 5.5% last month, with economists anticipating additional hikes in the coming months. Higher borrowing costs, combined with modest wage growth and increased debt repayments, present new hurdles for the domestic consumption cycle.

Despite these rising pressures, the Reserve Bank of India has not signaled immediate systemic alarm. Bad-loan ratios at Indian banks remain near multi-decade lows, and lenders have increasingly targeted personal credit toward borrowers with higher incomes and stronger credit profiles. Finance Minister Nirmala Sitharaman recently maintained that robust spending continues to encourage private sector investment and that India's consumption story remains intact.

"The rapid rise in consumer debt relative to wage growth is a critical metric for businesses and investors to monitor closely. While consumption has successfully fueled recent macroeconomic expansion, increasing debt-servicing obligations and rising interest rates introduce underlying vulnerabilities. For the startup and lending ecosystems, this transition highlights the importance of prudent credit underwriting and sustainable growth models that do not rely solely on heavily leveraged consumer spending." — Dr. Shishir Gupta, Founder & CEO, StartupLanes