Imagine a future where every paycheck goes to loan repayments, businesses struggle to grow, and the government cuts back on schools and hospitals. This is the shadow of rising debt in India—let’s uncover why it’s happening and how we can stop it from overwhelming us.

Debt is piling up everywhere; families, businesses, and the government are taking more loans than ever before. Borrowing money can help make dreams come true, like buying a home or starting a business. It can also fund big projects that help the country grow, like new roads or schools. But when debt gets too big, it can cause serious problems, like stress, financial struggles, or even a weaker economy. Let’s dive into why people and the country are borrowing so much, what this means for everyone, and how we can handle it better.

Why is debt growing?

Here are the main reasons debt is going up:

1. Many people are taking loans to buy things like houses, cars, phones, or TVs. Credit cards and easy monthly payment plans (EMIs) make it simple to borrow. But with prices for everyday items like food and fuel getting higher, families are borrowing just to keep up. This means they’re spending more than they earn, which can lead to a debt trap.
   
   

2. Small and big companies borrow money to grow, buy equipment, or pay workers during tough times. For example, a shop owner might take a loan to stock more goods. But high interest rates and slow sales after the pandemic make it hard for some businesses to pay back what they owe, adding to their debt.
   
   

3. The government borrows money to build things like highways or hospitals or to help people through schemes like free food or cash aid. These projects are important for the country’s progress, but they increase the national debt, which we all have to help pay back eventually.
   
   

4. Things are getting more expensive because of global problems, like high fuel costs or supply shortages. This inflation makes it harder for people to afford basics like groceries or rent. Many turn to loans or credit cards to cover these costs, which adds to their debt.

What do the numbers show?

The rise in debt is clear when you look at the data, and it’s happening across different parts of society. Here’s a closer look at the numbers and trends:

Household (Family) debt

• Growth rate & size: Household debt in India has indeed been rising, reaching about 23.9% of GDP in FY25, up from 23.1% the previous year. While personal loans and credit card borrowing have grown rapidly (credit card debt grew at a 25% CAGR over three years to FY24, slowing to 18% YoY in H1 FY25), the overall level of household debt remains manageable compared to other economies.
  
  

• Drivers: The increase is driven more by a growing number of borrowers than by larger loan sizes per person. Home loans and retail credit have surged, especially in urban areas, as you mentioned.
  
  

• Risks: There is some concern about financial stress, especially with rising unsecured loans and patchy income growth, but the asset quality (bad loans) in the personal loan segment has only risen marginally. Stressed assets in retail loans are being monitored, but overall household balance sheets remain relatively healthy.

Business debt

• Sectoral variation: Corporate debt levels vary. While some sectors (like tech and renewables) are managing well, others (such as real estate and manufacturing) still face pressure. Real estate, in particular, has struggled with slow sales and high borrowing costs.
  
  

• NPAs: Non-performing assets (bad loans) in banks have improved significantly, with gross NPAs for scheduled commercial banks dropping to a 12-year low of 2.6% in September 2024, and are expected to dip further to 2.4% by March 2025. However, there is rising stress in retail (unsecured) loans.
  
  

• Borrowing trends: SMEs often borrow to cover operational needs, and high interest rates remain a challenge.

Government debt

• Debt-to-GDP ratio: Central government outstanding liabilities are estimated at 56.1% of GDP for FY26, having peaked at 61% in FY21 and now on a gradual downward path. Combined central and state debt brings the public debt ratio close to 80-90% of GDP, as you noted.
  
  

• Interest payments: Interest payments are a significant burden, accounting for 25% of total government expenditure and 37% of revenue receipts in 2025-26.
  
  

• Policy shift: India is moving to use the debt-to-GDP ratio as its primary fiscal anchor from FY 2026-27, targeting a reduction to around 50% by 2031.

Borrowing can be a powerful tool if used wisely—it helps families achieve goals, businesses grow, and the government improves the country. But when debt grows too fast, it can create risks. For families, it means tighter budgets and financial stress. For businesses, it limits their ability to invest or hire. For the government, it could lead to higher taxes or cuts in public services down the line. If not managed, too much debt can slow down the entire economy, making it harder for everyone to prosper.

Why is this a concern?

Too much debt can cause problems for everyone:

For families: Paying back loans with high interest can eat up monthly budgets. Missing payments can hurt credit scores, making it harder to borrow in the future. It can also cause stress and worry, affecting family life and mental health. In some cases, families may need to sell assets like jewelry or property to clear debts. This cycle of borrowing and struggling to repay can trap people in financial hardship.

For businesses: Companies with big debts have less money to hire workers, buy new tools, or try new ideas. This can stop them from growing. High debt payments can also push some businesses toward bankruptcy if sales don’t pick up. This hurts employees, suppliers, and the local economy. Small businesses, in particular, may shut down if they can’t manage their loans, leading to job losses.

For the country: If the government borrows too much, it might need to raise taxes or cut spending on important things like schools or hospitals. It could also make loans more expensive for everyone, slowing down the economy.

How can we handle it?

Here are easy ways to keep debt under control:

1. Understand how loans and interest work. Make a budget to track spending and avoid borrowing for things you don’t need. Always check loan terms before signing.
   
   

2. The government can lower interest rates for small businesses or encourage people to save more. This would help families and companies borrow less.
   
   

3. Families should prioritise high-interest loans like credit cards, while businesses can consider investors over borrowing for growth.
   
   

4. More jobs mean more income, so people don’t need loans for daily expenses. Keeping prices stable will also help families afford what they need without borrowing.

How can we move forward?

Debt can help us achieve goals, but it’s like a tool—it needs to be used carefully. By making smart choices, creating better policies, and working toward financial stability, we can make sure debt doesn’t become a burden. Start small: check your loans, plan your spending, and save a little every month.

What’s your plan for managing debt?