Debt weighs on Indian middle class

Mahendra Shirole, a young man with a tall, burly frame, isn’t a mafia extortionist. But by his own admission, his job isn’t markedly different.

He is a private money recovery agent hired by banks and credit card companies to collect debts from cardholders. In recent months, life has gotten a lot busier.

“I usually try to recover payments by nonviolent ways,” Mr. Shirole says, “but if they don’t work, I don’t have another option.”

As India’s economy boomed in recent years, millions of upwardly mobile Indians embraced debt-fueled consumerism – ignoring the warnings of frugal generations before them who historically stuck to cash transactions.

But as the economy has slowed, job cuts and shriveling salaries have left more cardholders with rising debt – and more agents like Shirole on the payroll. Defaults have risen between 50 and 70 percent in the past six months, according to rupeetimes.com, an Indian finance portal.

Outstanding loans on credit cards reached $6 billion at the end of 2008, up 85 percent from the previous year, according to CRISIL, a ratings agency. In New Delhi alone, already overburdened courts are dealing with 400,000 cases of bounced checks, mostly payments for credit card purchases, according to government figures.

India currently has 30 million credit card holders, triple the number half a decade ago. In the past two years, the average credit card spending by an Indian has jumped about 30 percent, to Rs 2,400 per month ($48). Indians took on credit-card debt worth $14 billion in 2008, three times higher than just four years ago.

“It seems that India is likely to face a debt trap,” Ankit Sharma, a private finance expert, wrote in a column published at www.rupeetimes.com.

Feeding middle-class aspirations

After growing 9 percent annually for the past three years, the Indian economy is expected to slow this year – the International Monetary Fund projects just 5 percent growth for India’s GDP in 2009.
Before the global slowdown, for years Indians enjoyed one of the highest salary increases in the world. Salaries rose by 15.1 percent in 2008 – the highest in Asia – according to Hewitt Associates, a global human resources company.

The extra spending money spawned an appetite for swanky cars, cellphones, iPods, and other symbols of middle-class aspirations. In recent years, India has become the 12th largest consumer market.

During the years of economic boom, credit card companies aggressively targeted this 300 million-strong, high-earning, high-spending class – a largely urban populace whose earnings ranged between $4,500 and $22,000, according to the National Council for Applied Economic Research, a New Delhi-based think tank.

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