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Mint
7 hours ago
- Business
- Mint
Diderot's Curse and the BNPL Trap: Why India's middle class may be walking into a debt crisis
In 1769, French philosopher Denis Diderot received a luxurious scarlet dressing gown. At first, it delighted him. But then he noticed that everything around it—his old chair, desk, and rug—seemed shabby in comparison. One by one, he replaced them until he was mired in debt. This story, known as the 'Diderot Effect," remains a parable for how one act of consumption can trigger a cascade of financial decisions, often with ruinous outcomes. Fast forward to modern India, where a digital version of this effect is taking shape. This time, it's not scarlet robes but smartphones, kitchen renovations, weekend getaways, and online shopping sprees—all made seemingly affordable by Buy Now, Pay Later (BNPL) apps and instant small loans. These easy credit tools promise convenience and inclusion, especially to millennials and Gen Z professionals eager to live aspirational lives. Yet, behind the glitter of financial empowerment lies a troubling spiral of overleveraging, especially for India's burgeoning middle class, which lacks the structural safety nets that cushion such risks in the West. The growth numbers are staggering. According to CRIF High Mark data, personal loans of ₹10,000- ₹50,000 value grew at an annualised rate of 19% for the 2021-2024 period. BNPL offerings by fintech firms like LazyPay, ZestMoney (now defunct), and Paytm Postpaid have exploded in reach. But this rapid expansion masks a darker reality: a growing chunk of borrowers are falling behind on payments. Also Read: ITR 2025: Sahaj or Sugam — Which is the right income tax form for you? RBI's Financial Stability Report Dec 2024 shows that 11% of the borrowers originating a personal loan under ₹50,000 had an overdue personal loan, and over 60% of them had taken out more than three loans during 2024-25 so far. Moreover, nearly three-fifths of customers who took out a personal loan in Q2: 2024-25 had more than three live loans at the time of origination. Loan delinquency TransUnion Cibil reports show that the rising delinquency rates for BNPL products rose to 4.8% from 3.6% within a year. Most of these defaults are concentrated among borrowers under 30—a demographic already grappling with underemployment, wage stagnation, and high rental costs in cities. Unlike traditional credit cards or personal loans, BNPLs often fly under the radar. They don't always show up in credit reports immediately, and multiple platforms can extend concurrent credit to the same borrower without any central visibility. This creates a dangerous illusion of affordability. A consumer may think they're paying only ₹2,000 per month on a new iPhone—but when stacked with deferred payments on furniture, groceries, vacations, and even tuition, the monthly outflow quietly balloons. This trend becomes even more alarming when paired with India's lack of universal healthcare and weak social protection. A 2022 report by Azim Premji University found that 68% of middle-class households had no health insurance, and over half would fall into poverty if faced with a major hospitalisation. In this vacuum, medical BNPL has emerged as a fast-growing segment, with platforms like QubeHealth and SaveIn offering deferred payment options at clinics and hospitals. For a family already juggling four EMIs, a sudden ₹60,000 emergency loan for surgery can push them into a tailspin. Also Read: RBI repo rate cut: How home loan EMI, and bank FD return will change? EXPLAINED The regulatory response has so far been cautious but piecemeal. RBI has cracked down on unregulated digital lending apps and discouraged pre-approved credit lines without user consent. But BNPL providers—many operating through NBFC partnerships—still operate in a regulatory grey area. With no unified reporting framework and lax income verification, users can easily borrow beyond their repayment capacity. The illusion of financial empowerment masks a systemic failure to track and contain household debt. Moving ahead So, what's the way forward? Structural fixes like universal healthcare, formal job creation, and large-scale financial literacy are imperative, but they take time. What India needs right now is a set of practical, near-term interventions, both by consumers and regulators, to curb the looming crisis. On the consumer side, individuals must begin treating BNPL for what it is: a form of unsecured debt, not a lifestyle hack. Before clicking 'pay later," users should track their cumulative EMIs across platforms using credit aggregator tools like OneScore or CRED. A good rule of thumb is to ensure no more than 30% of monthly income is locked into repayments. Stacking credit across apps may feel manageable initially, but when salaries are delayed or unexpected expenses arise, this house of cards collapses swiftly. Regulators, too, must move decisively. The RBI should mandate real-time reporting of BNPL loans to credit bureaus and enforce a central dashboard where consumers can view all liabilities. Income-based eligibility limits—particularly for first-time or subprime borrowers—must be imposed to prevent overleveraging. Most urgently, coercive collection practices—already on the rise via WhatsApp threats and public shaming—must be met with heavy penalties. Also Read: Health insurance vs medical corpus: What should senior citizens prioritize? India's middle class today is not buying goods—it's buying identities, dreams, and status symbols in instalments. But as Diderot discovered, the cost of one indulgence can quickly multiply when there are no checks. If we don't build those guardrails now, a generation of Indians may find themselves trapped, dressed in aspiration, and drowning in debt. Kiran J Mahasuar is assistant professor, co-chairperson – Strategy, Innovation & Entrepreneurship Area, IMT Ghaziabad
Scroll.in
08-05-2025
- General
- Scroll.in
Sustainable living: In a new book, a leadership coach offers 100 ways to make mindful choices
Less or more? On the Diderot Effect and conscious consumption Denis Diderot, the French philosopher behind one of the first encyclopaedias, spent most of his life in poverty. That is until Catherine the Great of Russia bought his encyclopaedia collection, suddenly making him a wealthy man. What did Diderot do with his newfound wealth? He bought himself a luxurious new robe. And that's where it all began. Once he had the robe, his old chair looked shabby in comparison, so he bought a new one. The new chair made the rest of his furniture seem outdated, so he upgraded his entire study. Then he needed new rugs, new decor and on and on it went, until he found himself trapped in a cycle of endless consumption. This phenomenon, now known as the Diderot Effect, explains why one small purchase can trigger a domino effect, leading us to acquire more than we ever intended. Have you experienced this? You buy a nice dress and now you need nice shoes or a bag to match. You move into a larger house and now you need more stuff to put inside it. We live in an age of abundance. There are more career paths, lifestyle options, entertainment choices and consumer goods than ever before. Logically, you'd think this would make us happier. But as research shows, this often has the opposite effect. For one, more choices lead to decision fatigue – the more options we have, the harder it is to decide. Two, even if you make a choice, you experience some amount of dissatisfaction as you wonder if you made the best choice. Barry Schwartz calls this the Paradox of Choice – having more options doesn't make us more content – it often makes us more anxious. Could there be a better way? I am learning to cultivate what I like to call the 'Reverse Diderot Effect'. Years ago, frustrated by mindless consumption, I made a radical decision. I stopped shopping for clothes entirely. What started as a short-term challenge turned into five years of not buying a single new outfit. It was difficult at first but over time it became a core part of my identity and I started to take great pride in living consciously. Instead of accumulating more, I began upcycling by revamping old sarees into new outfits. Almost every speaking engagement I've had in the last five years, I've done in an upcycled piece of clothing. And you know what? I've never felt freer. With fewer clothes I had less need for accessories to go with my clothes. With less time spent on shopping, I had more time for other activities like reading. With fewer resources spent on clothes, I could invest in things with more lasting value to power my own learning and development. With less mental bandwidth used for deciding what to wear every day, I could focus on more important decisions such as how to expand my business to serve more women. Here are three ways in which you can overcome the Diderot Effect and reclaim your mental and emotional space. One, start with small, self-imposed limits – try going just one month without shopping. Two, eliminate triggers – unfollow people or accounts that encourage mindless consumption. Three, adopt a 'buy one, give one' strategy – whenever you buy something new, aim to give something away, especially to those who need it. The most precious piece of real estate you have is your mind. The fewer distractions you allow in, the more space you create for clarity, purpose and joy. My question for you: Where in your life can you reverse the Diderot Effect? Fact or story? On reframing your thoughts for clarity I was sitting at a coffee shop recently when I spotted someone I hadn't seen in a while. I was quite pleased to see her. When she looked in my direction, I excitedly smiled and waved at her. But she didn't wave back. In fact, she walked right past me. Immediately my mind started spinning: Did I do something to upset her? Maybe she doesn't like me anymore. Maybe I should have kept in touch more. I must have spent the next several minutes caught in this loop, trying to figure out why she had ignored me. Have you had something similar happen to you? As you try to make sense of a situation, your thoughts weave a story – one that doesn't serve you well. We do this all the time. You send an email and don't get a response. Your mind jumps to: They must think my request isn't important. You present an idea in a meeting and someone looks distracted. Your mind whispers: They must find my ideas boring. You invite a friend out and they cancel last minute. The story you tell yourself? They don't value our friendship as much as I do. Our minds are story-making machines. We are conditioned to create a story, any story, just to make sense of the world. But in the absence of actual information about what the truth really is, it doesn't help to be spinning these stories. Often these stories – while compelling – aren't true. So how do we stop ourselves from going down a rabbit hole of blame or shame in these situations? Dr Amishi Jha, author of Peak Mind, offers two powerful questions to break this cycle. What do I know for sure? Strip away all assumptions and stick only to the verifiable facts. What is the story I am telling myself? Acknowledge that your interpretation is just one of many possibilities. When I applied these questions to my coffee shop experience, here's what I knew for sure: I saw someone I knew. She appeared to look in my direction. I waved. She did not appear to wave back. That was it. Everything else – my assumptions, my interpretations – was a story I had created. Also, I realised there were countless reasons she may not have acknowledged me. Maybe she didn't actually see me. Maybe she was lost in thought. Maybe she was having a bad day. As soon as I dropped the story I had created, I felt calmer. This doesn't mean we ignore important signals. Sometimes we do need to get clarity. If your boss hasn't responded to an important email, instead of assuming the worst, you can follow up. If you're unsure how your idea landed in a meeting, you can ask for feedback. But jumping to conclusions rarely serves us. The reality is that most people are too absorbed in their own worlds to be as focused on us as we think they are. Here is an exercise I'd like to leave you with: At any point today, if you catch yourself overthinking a situation or interaction, I encourage you to consciously ask these two questions: What do I know for sure? What is a story I am telling myself? It just might set you free. Excerpted with permission from The Conscious Choice: 100 Ideas for Living and Leading Mindfully, Bhavna Toor, Pan Macmillan India.
