India’s consumption numbers hide a deeper story

On the surface India looks like a consumer powerhouse. Rural per‑capita spending rose 9.3% in 2023‑24 to Rs 4,122 and urban spending grew 8.3% to Rs 6,996, according to the latest NSSE figures. Those headline numbers certainly suggest people are buying more.

But the data stop short of telling us where the money came from. Was it a genuine jump in wages and profits, or did families lean on savings, borrow more, or tap government transfers? The answer matters – a rise fueled by income points to durable demand, while credit‑driven growth could be fragile.

Looking at the Reserve Bank of India’s Financial Stability Report, household debt jumped from 41.3% of GDP in March 2025 to 45.5% by September 2025. Non‑housing retail loans – the sort that fund day‑to‑day purchases rather than a house – made up 58.4% of that borrowing by March 2026. In other words, almost half of what Indian households owe is tied directly to consumption.

At the same time, the RBI’s Annual Report shows net household financial savings rose to 7% of gross national disposable income (GNDI) in 2024‑25, up from 5.8% a year earlier. Gross savings slipped a touch, from 12.1% to 11.8% of GNDI, while financial liabilities fell sharply to 4.8% of GNDI from 6.4%.

Those two snapshots seem to clash. Debt grew as a share of GDP, yet the liabilities‑to‑GNDI ratio fell. That’s because one measure looks at a flow over a single year, the other at a stock built up over many years. The nuance is easy to miss when the headlines simply say “household debt is rising.”

What’s more, the composition of that debt is shifting toward unsecured credit. Unsecured loans climbed from about 18% of total bank credit in March 2016 to 25.3% in March 2024. Personal loan growth was 15.8% YoY by June 2026, and gold‑loan originations surged 103% YoY in the March 2026 quarter – the fastest pace among retail credit categories.

Gold loans deserve a special mention. Households often pledge jewellery not to buy a new TV, but to cover a medical emergency or bridge a temporary income gap. So a spike in gold‑loan volumes paints a different picture from a surge in consumer‑durable financing.

There’s another wrinkle: the way the national accounts define the “household sector.” It lumps together individuals, tiny unincorporated firms, sole‑proprietorships and partnerships. A loan recorded as a household liability might actually be working‑capital for a kirana shop or a farm input purchase, not a personal loan for a wedding or a phone.

This blending of stories means that when household credit expands, markets often read it as a pure consumption signal – a sign of a more confident Indian buyer. In reality, part of that credit is supporting small businesses, which have very different implications for interest‑rate policy.

Minister of State for Finance Pankaj Chaudhary recently told the Rajya Sabha that household savings, including physical assets, rose to 21.7% of GDP in 2024‑25 from 20% two years earlier. That narrative of a savings recovery sits alongside the RBI’s warning that debt is becoming more unsecured and consumption‑linked. Both are true, yet neither alone captures the full balance sheet.

All this matters for the Reserve Bank’s policy moves. The RBI cut the repo rate by 100 basis points to 5.25% in 2025‑26 to stoke demand. A cheaper loan rate certainly encourages fresh borrowing, but it does nothing for households already tapping gold loans to plug income shortfalls, nor does it differentiate between a fridge buyer and a shopkeeper restocking shelves.

If a sizable chunk of today’s consumption growth is credit‑driven rather than income‑driven, the transmission of rate cuts into real‑world demand will look very different from the textbook case. Unfortunately, the current data framework does not separate those two channels cleanly, leaving policymakers to read between the lines.