India’s Middle Class Faces Growing Debt Crisis Amid Rising EMIs

 India’s Middle Class Faces Growing Debt Crisis Amid Rising EMIs

Household debt, credit card defaults, and global financial instability put families and the economy under pressure

Date: October 16, 2025

By: DeepOct News

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India — From the outside, the Indian middle class appears prosperous, able to afford houses, cars, foreign trips, healthcare, and the latest gadgets. But a closer look reveals that much of this lifestyle is sustained by EMIs (Equated Monthly Installments) and loans, often carrying hidden interest components that can erode peace of mind.

Financial experts warn that Indian households are increasingly trapped in a cycle of debt, with one loan or EMI following another. To pay off one credit card, many resort to using another, pushing household debt to alarming levels.

Household Debt and Financial Stress

• Average household debt has risen from ₹3.9 lakh in 2022 to ₹4.8 lakh in 2025, meaning each family carries roughly ₹5 lakh debt.

• Credit card usage in India has increased by 50% over the past three years.

• Household debt now accounts for 42% of India’s GDP, up from 26% in 2015.

• Household savings are at their lowest in 50 years, leaving families financially vulnerable.

Much of this debt is not for asset creation but to cover routine expenses such as school fees, medical bills, phones, and lifestyle products. Shockingly, about 40% of smartphones and over 70% of iPhones are purchased on EMI, and 80% of four-wheeler sales are financed through loans.

Credit Card Defaults and Irrational Borrowing

The trend of borrowing for non-essential items has worsened financial health:

• Credit card default rates have spiked to over 28%, with outstanding credit card debt now at ₹2.92 lakh crore.

• Loans are also being taken for vacations, weddings, and lifestyle indulgences. Around 27% of people fund vacations through loans.

• The rising burden of EMIs is disrupting sleep, mental health, and productivity for middle-class families.

State and Central Government Debt

The debt problem extends beyond households to state and national governments:

• Total state debt increased from ₹27 lakh crore in 2015 to ₹90 lakh crore in 2025, with debt-to-GSDP ratios rising from 22% to 29%.

• Many states borrow to fund salaries and populist schemes rather than productive investment in infrastructure, education, or social services.

• Central government debt has tripled since 2014, reaching 81% of GDP, though borrowing from the domestic market has mitigated external risk.

Experts caution that without fiscal discipline and proper investment, both state and central debt may create long-term economic instability.

Global Debt Concerns

India is not alone in facing rising debt. Globally, total debt stands at $251 trillion, while global GDP is $107 trillion, giving a debt-to-GDP ratio of 235%. Economists warn that excessive global debt, combined with stagnating income growth, could trigger a financial crisis, affecting both nations and households.

Solutions and Precautions

Financial advisors recommend the following for individuals:

• Avoid loans for non-essential lifestyle purchases.

• Build an emergency fund before taking loans or using credit cards.

• Prioritize health and term insurance to protect against unforeseen medical emergencies and untimely death. Premiums as low as ₹400–₹500/month can provide coverage worth lakhs or even crores.

• Use credit cards responsibly.

At the government level, experts urge stricter fiscal discipline, productive investment of borrowed funds, and long-term economic planning.

Conclusion

The Indian middle class is caught in a debt trap that threatens both personal and national financial stability. Awareness, prudent borrowing, insurance coverage, and disciplined spending are essential to avoid financial disaster.

As the festive season approaches, financial prudence—rather than splurging on EMIs—is the key to a happy, safe, and stress-free Diwali.