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Surging household debt a major concern

Rises to 37.3% of GDP in FY21 from 32.5% of GDP in FY20: SBI

Surging household debt a major concern
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Surging household debt a major concern

The economists at the country's largest lender, State Bank of India (SBI), have expressed concerns over sharp increase in household debt during past one year.

"One of the worrying features is the increase in household stress. Household debt (after taking into account retail loans, crop loans and business loans from financial institutions, viz., commercial banks, credit societies, NBFCs and HFCs) has sharply increased to 37.3 per cent of GDP in FY21 from 32.5 per cent of GDP in FY20," says the report published by Ecowrap, an in-house economic journal of SBI.

The decline in bank deposits in FY21 and the concomitant increase in health expenditure may result in further increase in household debt to GDP in FY22

"India's household debt to GDP ratio is still lower than other countries, though we need to supplement wage income as a percentage of GDP that has been declining," says Soumya Kanti Ghosh, chief economic advisor to the SBI group.

If we proxy employee expenses as wage income, as percentage of corporate GVA for our sample of 3973 listed companies, it has come down to 30.6 per cent in FY21 from 34.1 per cent in FY20, he added.

Various indicators, as per the report, show improvement in economic activity in June 2021. SBI business activity index shows significant improvement in activity since May-end with the latest reading for the week ended June 28, 2021, of 91.8 level.

PV sales increased as visible in various companies' data. Replacement demand and increase in inventories apart from a pick-up in demand could be the possible reasons for such an increase.

Covid-19 has impacted lives and livelihood across the economies and business sectors. The trends of deposits during first wave (March-December 2020) of Covid-19 as revealed by ASCBs data from RBI for 711 districts across all States/UTs show deposit outflows from 112 districts at Rs 1.06 lakh crore.

However, between March 2021 and March 2020, the deposit outflow only declined to Rs 38,295 crore from 61 districts in the country indicating a revival in activity.

The beginning of the second wave, however, has resulted in significant deposit outflows from banking system in alternated fortnights, the pace of which has now again moderated

Coming on Covid-19 update, the report says that global experience shows that countries with high per capita GDP have been associated with higher Covid- 19 deaths per million, while low per capita countries are associated with low Covid-19 deaths, revealing high income countries suffered more during the pandemic.

Delta strain has been detected in the US, the UK, China, Japan, Poland, Portugal, Russia, and Switzerland. It is the dominant variant in the UK and now accounts for 95 per cent of cases being sequenced. Even reasonably vaccinated countries like the UK have been witnessing increase in new cases.

Israel has vaccinated nearly 60 per cent of its population completely. Even amongst the children in the age group 12-18 years, 33 per cent have received the first dose and 23.8 per cent have got the two doses

However, even then cases have again started increasing since last week of June'21 (daily new cases average of around 250) with 2125 active cases including 50 hospitalised

In India we have 51 cases of Delta Plus variant in 12 States by end-June. New cases in top 15 districts, which are mostly urban increased again in June'21. But the good thing is that their fatality rate has been constant for three months, the report added.

Kumud Das

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