Ritesh Kumar Singh is Chief Executive of Indonomics Consulting in New Delhi. India's declining household financial savings have become a subject of intense debate.

The fall in net household financial savings -- the difference between financial assets and financial liabilities -- has prompted concerns that many Indian households are under severe financial stress as income growth is not keeping pace with rising living costs and taxes. But falling savings do not necessarily mean households are becoming poorer.

When households borrow more, their net financial savings fall, even if their incomes have not declined. The important question, therefore, is not simply whether households are saving less, but why?

The numbers are striking. According to the Reserve Bank of India (RBI), Net household financial savings dropped from 7.3% of India's GDP in 2021-22 to 5.3% in 2022-23, before recovering to 7% in 2024-25. The latest data shows that the ratio fell again to 6.2% in 2025-26, as household financial liabilities rose sharply.

RBI has previously attributed the decline in net financial savings partly to increased borrowing and a shift toward physical assets such as real estate and gold.

But rising consumption-related borrowing raises another question: Are households saving less because they are under financial stress, or because they are increasingly using credit to fund consumption?

The distinction matters. A household taking a loan to buy a car or an expensive smartphone is in a different position from one borrowing to pay for groceries or medical expenses because its income is insufficient. Both add to household debt, but the reasons for borrowing are different.

The debate over household savings also risks overlooking differences between households. Affluent families with rising incomes may borrow to finance discretionary consumption while continuing to accumulate property and investments. Lower-income families may borrow because their earnings are insufficient to cover essential expenses.

Credit allows people to make purchases today rather than wait until they have saved enough. If their incomes can comfortably cover the repayments, borrowing need not indicate financial distress. It can reflect a willingness to spend more today against expected future income.

The RBI's June 2026 "Financial Stability Report" provides an important clue. Household debt stood at 45.5% of India's GDP as of Sept. 30, 2025, compared with 59% in China, 69.9% in Malaysia and 87.3% in Thailand. Women wait for customers at a fish market in Chennai on Aug. 22.

By March 2026, nonhousing retail loans accounted for 58.4% of total household borrowing, with their share rising over time. These loans largely finance consumption, from buying cars and consumer goods to funding holidays and other discretionary spending. The balance comprised housing loans (26.3%) and agricultural and business loans (15.3%).

That is not automatically a bad thing. Greater access to formal credit allows households to spread the cost of purchases over time. Lenders assess borrowers' incomes, existing obligations, credit histories and, where relevant, collateral before extending loans. Their willingness to lend can, therefore, reflect their assessment of borrowers' repayment capacity.

Lending decisions are not infallible, and access to credit does not prove that every borrower is financially comfortable. But rising borrowing alone cannot establish that households are becoming poorer either.

If rising household borrowing were already causing widespread financial distress, we would expect to see clear evidence of deteriorating repayment performance. The available data offers a more encouraging picture.

The RBI's June 2026 report on financial stability put the gross nonperforming asset ratio at 0.7% for secured retail loans and 1.7% for unsecured retail loans in March 2026. Unsecured loans carry greater risk, but the figures do not point to a broad surge in bad loans across retail lending.

Credit bureau CRIF High Mark's "How India Lends" report provides further evidence. The share of consumption loans overdue by 31-180 days fell from 2.9% in March 2025 to 2.4% in March 2026. This is an overdue-loan measure rather than a bad-loan ratio, but the decline suggests that repayment performance has improved even as lending to fund consumption has expanded.

There are risks in specific segments, especially small-ticket unsecured lending. But these risks should not be confused with evidence of widespread financial distress among Indian households. Overall loan repayment trends do not support such a conclusion.

The level of net savings and the composition of household borrowing need to be examined together. The 6.2% net financial savings-to-GDP ratio gives us one measure of how much households are saving. The rising share of nonhousing retail debt tells us something about how they are borrowing. Neither statistic on its own proves that Indian households are becoming poorer or wealthier.

Rising consumption borrowing could reflect greater access to credit, confidence in future earnings and a willingness to spend more today. It could also create problems if incomes fail to keep pace with debt repayments. Both outcomes are possible, but the available loan default data does not establish that widespread financial distress is taking hold.

The real question is not simply why Indians are saving less. It is whether they are borrowing against rising future incomes or using debt to sustain a standard of living their current incomes cannot support. Until that distinction is made, interpreting falling net financial savings as proof that Indians are becoming poorer risks confusing a change in how households finance consumption with a deterioration in their economic well-being.