Middle-class stuck in debt trap, says Marcellus Investment's Saurabh Mukherjea
India's middle class is falling into a dangerous pattern of debt-fuelled consumption, warns Saurabh Mukherjea, founder of Marcellus Investment Managers. The dream of upward mobility is increasingly being financed through easy credit, and the fallout has already begun.Using data from the Reserve Bank of India, Mukherjea estimates that 5-10% of middle-class households are now stuck in a debt trap. These are not isolated incidents, he says, but symptoms of a larger shift driven by social media-fuelled aspiration, cheap loans, and pandemic-era mindset changes.advertisement'After two years at home during Covid, people were utterly convinced that whatever their financial means are, it doesn't matter—they too can live the good life,' Mukherjea said in a podcast with The Federal.
From luxury vacations to designer gadgets and upscale homes, the illusion of affluence is now just an EMI away. Consumption, once tied to income, is being decoupled through credit.'You're told every minute that you should have the lifestyle of an IPL cricketer. You don't have to work for it—you can get it on credit,' Mukherjea pointed out.Fuelling this shift is the India Stack—Jandhan, Aadhaar, and Mobile—which has made credit more accessible than ever before. While a success story in financial inclusion, Mukherjea argues it has also removed key friction points that once forced consumers to think twice before borrowing.advertisement'It allows people to take on a ton of debt almost unthinkingly,' he noted.The distress is unfolding in predictable stages. First came defaults in microfinance. Then trouble in the unsecured loan segment. Now, credit card delinquencies are rising, and even two-wheeler financing is under pressure.'Whenever I see credit cards being handed out at airports, the analyst in me starts worrying,' Mukherjea remarked.For now, home and car loans remain stable, but Mukherjea sees them as the next pressure points if the current cycle continues unchecked.To make matters worse, household savings have dropped to their lowest in 50 years. Middle-class income is being funnelled into loan repayments or risky investments in equities, leaving little safety net. Banks are feeling the strain as well, with deposit growth slowing.Mukherjea's solution is a bold macroeconomic reset: 'We need the RBI to step in with a 2% rate cut, fresh liquidity, and a 10 to 15 percent devaluation of the rupee. That's the kind of decisive action that could pull us back from the edge.'Until then, the middle class remains locked in a fragile balancing act—living the good life on borrowed time, and borrowed money.
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