Modi's Debt Dilemma: Can Households Save India's Economy?

As India gears up for its monumental election season, Prime Minister Narendra Modi's Bharatiya Janata Party (BJP) is banking on a series of economic reforms to secure a third term. Central to this strategy is the government's focus on reducing household debt, which has surged to a staggering $346 billion. This debt pile, equivalent to 41% of India's GDP, poses a significant threat to the country's economic stability and growth trajectory. The question on everyone's mind is: Can Modi's policies effectively rein in this debt and stimulate economic growth?



The Modi government has implemented a range of measures to address the rising household financial liabilities. The Union Budget 2025-26 introduced significant tax reforms, including no income tax payable up to an income of ₹12 lakh under the new tax regime and revised slabs and rates of personal income tax across the board. These changes aim to boost disposable income, encouraging household consumption, savings, and investment. Additionally, the government has proposed enhanced pension schemes, support for affordable housing, public health schemes, financial backing for entrepreneurs, and initiatives to promote sustainable infrastructure. These measures are designed to alleviate the financial burden on the middle class and stimulate economic activity.

However, the effectiveness of these policies remains a subject of debate. Despite the government's proactive approach, per capita household financial liabilities have continued to rise, from ₹46,898 in 2019 to ₹86,713 in 2024. This trend suggests that the measures may not have been sufficient to curb the increasing debt. The government's recognition of the importance of the middle class and the implementation of supportive measures indicate a proactive approach, but the actual impact on reducing household financial liabilities remains to be seen.



The potential impacts of these policies on India's economic growth trajectory are multifaceted. On the positive side, reducing household debt and increasing disposable income can stimulate consumer spending, which accounts for a significant portion of India's GDP. This increased spending can drive demand for goods and services, leading to higher economic activity and growth. Furthermore, the government's focus on infrastructure development and support for entrepreneurship can create new job opportunities and foster innovation, further boosting economic growth.

However, there are also potential challenges. The government's policies may not be sufficient to address the underlying issues contributing to the rise in household debt, such as stagnant wages and rising living costs. Additionally, the effectiveness of these policies depends on their implementation and the government's ability to manage public finances sustainably. If the government's fiscal deficit widens, as indicated by recent data, it could limit the resources available for investment in public goods and services, potentially hindering economic growth.

In conclusion, the Modi government's focus on household debt reduction aligns with its broader economic policies aimed at enhancing the spending power of the middle class and promoting economic growth. While these policies have the potential to stimulate consumer spending and drive economic activity, their effectiveness depends on successful implementation and sustainable management of public finances. As India heads to the polls, the success of these policies will be crucial in determining the country's economic future.