The coat and the cloth

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The practice of taking loans existed far before money was invented. It was merely facilitated with the money becoming popular. But at an individual level, debt really turned into a cult with the invention of plastic money. Debt can help. The rise in household debt and the leap in credit card expenditure in India during the pandemic are proof enough. But beyond the pale of the pandemic and distress, credit culture is rising fast in the country, thanks to a huge push to retail debt from banks and different institutions.

The taste for credit-driven expenditure is growing fast among the youth also through credit cards and the aggressive marketing of the Buy Now Pay Later model that is increasingly being adopted by different sectors of goods and services. A small indicator – average credit card transaction in July touched Rs 11,830, up by 223% from Rs 3,665 in April 2020.

There are always two sides of a coin. While one side of the coin of expanding retail credit might point to pick up in demand that will help revive the economy, moving to an over-leveraged position does not augur well both for the individual and the collective. An over-dependence on credit to consume might result in trouble on the personal finance front since it will leave an individual with little or no savings to invest in for the future. Buying everything with a credit card is a culture we are borrowing from the west, especially the US, where it is relatively easier to get a job to keep paying off debts.

Moreover, a rise in debt in a large number of individuals over a period of time is also bound to impact household savings which is critical to the economy. A country that has a low savings rate cannot meet its investment needs from within the country and has to depend on borrowings from other countries or agencies. It can have a variety of implications for the country including even a debt trap. Coats, at all times, should be cut according to one’s cloth.