India's Non-Financial Sector debt growth remains subdued in 2QFY21, says report

New Delhi, India's non-financial sector debt growth remained subdued in 2QFY21 despite the economic disruption caused by Covid-19 pandemic, Motilal Oswal said in a report.

As per the Ecoscope report, owing to the pandemic and subsequent collapse in economic activity, a jump in the debt-to-GDP ratio across nations was inevitable.

However, a comparison between India and other major nations suggested that not only was the NFS debt-to-GDP ratio in India lower compared with other economies, but debt growth was slightly better than in the previous quarters.

Accordingly, India's NFS debt increased to 174.4% of the GDP in 2QFY21 from 15.4% at the end of 2019, a jump of 20 percentage points (pp).

In contrast, it rose by as much as 33 pp of GDP in the US, 32 pp in the UK, 36 pp in Japan, and 25 pp in China.

"The contribution of NFS debt growth to the surge in NFS debt-to-GDP ratio in India was the lowest in 3QCY20."

According to the report, the NFS debt growth in 2QFY21 (or 3QCY20) when compared to historical trends in the economy showed that India's performance was better than other nations.

"India's NFS debt growth of 10.5% YoY in 3QCY20 was the highest in five quarters and marginally better than the record low growth of 8.2% in 4QFY20."

"Growth of 11.5% YoY in US' NFS debt was close to the highest in 15 years and more than double the average growth of 5% in the past few years."

In Japan, the report cited the NFS debt grew only 5.4% YoY in 3QCY20, it marked the highest growth seen in 24 years. In China, it stood at 13.1% in 3QCY20, a three-year high.

"The marginal uptick in India's NFS debt, vis-a-vis other major nations, may be because of the delayed government response since the credit guarantee scheme was announced by the government of India in mid-May'20, while it was implemented much earlier (Mar-Apr'20) in other nations."

"However, the tepid NGNF growth in 2QFY21 confirms that the scheme has failed to yield the desired results in terms of boosting credit growth in the country. We have earlier argued that Covid-19 may have an adverse impact on household income in India. Combine that with subdued debt growth, a strong revival looks highly ambitious."


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