Debt-to-GDP level touches record high

Mumbai: India’s debt-to-GDP ratio has touched 150 per cent, the highest-ever level, even as the government debt scaled to 68.4 per cent of GDP, making it among the highest in major emerging markets.

This apart, the debt of non-government non-financial companies (NGNFs) has now reached an all-time high of 81.4 per cent of GDP, according to a study by Motilal Oswal Financial Services.

“Notwithstanding the IL&FS default in late September 2018, non-government non-financial companies (NGNF) debt in India continued growing unabated in 3QFY19, beating all the fears related to the adverse impact on India’s financial system,” the report said.

The study found that India’s total debt increased from $1.6 trillion, or Rs 80.3 lakh crore, a decade ago to as much as $3.9 trillion, or Rs 251 lakh crore, in the financial year 2017-18 (FY18). This 2.4 times rise in the country’s total debt—which is 3.1 times in rupee terms—was similar to nominal GDP growth.

India’s debt-to-GDP ratio was 149.8 per cent in FY18, not significantly different from 147.2 per cent in FY09, but higher than 143.4 per cent in FY12, the Motilal Oswal report said.

Although banks remain the dominant creditor in the economy, their share in end-user credit has fallen from 73 per cent in FY05 to sub- 60 per cent in FY18, the report said.

“A look at various creditors reveals that while bank credit growth has averaged 9 per cent over the past five years, it averaged 22 per cent for housing finance companies (HFCs), 18 per cent for commercial banks (CBs) and 15.7 per cent for non-banking finance companies (NBFCs),” the report said.

“Consequently, although banks remain the dominant creditor in the economy, their share in end-user credit has fallen consistently from 73 per cent in FY05 to 66.5 per cent in FY12 and further to first-time sub-60 per cent in FY18. The share of HFCs, corporate bonds and NBFCs has increased,” it said.

Although credit growth of 18 per cent  y-o-y for NBFCs (including HFCs) was at a five-quarter low in the October-December quarter of this financial year (3QFY19), it was at a nine-quarter high at 12 per cent YoY for banks.

Consequently, NGNF credit grew 13.3 per cent YoY in 3QFY19, only marginally slower than 14 per cent in 2QFY19 and much higher than sub-12 per cent in FY17 and FY18.

“Although India is the fastest growing major economy in the world, it is nothing less than ironical that there is no measure to learn about the economy’s debt,” the report said.

“While debt is one of the most important sources of financing, it is also a critical determinant of financial stability in an economy and could potentially lead to a slowdown (or total collapse), if left unchecked,” the report warned.

Household debt has risen to an all-time high of 33.1 per cent of GDP in FY18, while India’s corporate sector has de-leveraged, with the debt-to-GDP ratio at a six-year- low of 48.3 per cent, the report said.

A comparison of India’s nominal GDP growth with total debt growth reveals that India’s debt intensity of GDP growth (defined as the growth in debt needed to produce an additional percentage point of nominal GDP growth) has not changed significantly over the past 15 years and ranged between the best of 0.8 times in FY11 and FY15, and the worst of 1.4x  times in FY09.

Debt intensity stood at 1.1 times in FY18–exactly the average of the highest and lowest levels over the past 15 years, the report said.