How India spends: A third of the income is spent on loan EMIs, says new study

The report—How India Spends—says the share of individuals paying loan EMIs (equated monthly instalments) is highest among upper-mid-level earners and lowest among entry-level earners. Further, those in lower salary brackets are more likely to take loans from informal sources such as friends, family, or local shadow lenders.

Higher penetration of loans in higher-income segments is reflective of higher living expenses as well as rising aspirations to buy premium or luxury goods such as vehicles and fund holidays.

Broadly, the report says Indian households allocate 39% of their income to obligatory expenses (such as loan instalments), 32% to necessities, and 29% to discretionary spending, with the latter led by lifestyle purchases and online gaming.

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The report’s dataset comprises borrowers who primarily use fintech, NBFCs (non-banking finance companies), and other digital platforms.

These borrowers were distributed across different geographies (from tier-III to metro cities) and income levels (from less than ₹20,000 per month to more than ₹1,00,000 per month).

“Individuals in lower salary brackets are primarily channelling most of their earnings toward meeting essential needs or servicing debt. Conversely, those in higher salary bands are allocating a significant portion of their income toward obligatory and discretionary spending," the report said.

The report defined obligatory expenses as repayment of loans and payment of premiums for insurance policies. Meanwhile, discretionary expenses are linked to expenses related to online gaming, dining out or ordering-in food, entertainment, travel and lifestyle purchases. Necessities are basic household needs such as utilities (water, electricity, gas, etc.), fuel, medicine, groceries etc.

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According to the report, the percentage of money spent on discretionary expenses increases progressively from the entry-level earners to the high-income earners, from 22% to 33%.

“A similar trend is observed for obligatory expenses, where the percentage of spending goes from 34% for entry-level earners to 45% for high-income earners. However, a converse trend is observed for necessity expenses, where the percentage of money spent decreases with an increase in salary—declining from 44% for entry-level earners to 22% for high-income earners," the report stated.

Savings stress

To be sure, despite rising consumption, India’s household savings have plummeted to a five-year low, reaching just 5.1% of GDP in 2023, according to RBI data. This decline in financial assets coincides with a surge in personal loans, which have grown by 13.7% year-on-year to ₹55.3 trillion as of September 2024.



“While consumption has gone up, we have seen a decline in financial assets and savings," Sabyasachi Goswami, CEO of Perfios, said in an interview with Mint, adding that while consumption is flourishing, lower savings put stress on households.

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“This is despite a 9.1 % year-on-year jump in salaries over the past six years. What we see is debt levels are rising as households buy vehicles and houses," said Goswami.

The report also reveals interesting trends in discretionary spending. Over 62% of these expenses are dedicated to lifestyle purchases, with high-income earners spending nearly three times as much on such items ( ₹3,207 per month) as entry-level earners ( ₹958). Online gaming is most popular among lower earners (22%), decreasing to 12% for higher earners.


The most popular mode of payment used for obligatory spending is electronic clearing service (ECS). However, for both discretionary and necessary expenditures, UPI (unified payment interface) is the most preferred method.

People in tier-II cities spend the most on medical expenses, averaging 20% more per month than those in tier-I cities.

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“The lines between discretionary spending and future obligations have been blurred by the rise of personal lending through form factors such as embedded finance, peer-to-peer loans and credit cards, and other traditional loan categories like home loans, education loans and auto loans," the report said.

“On an average, salaried individuals allocated between 34% and 45% of their income to obligatory expenses, between 22% and 44% to necessities, and between 22% and 33% to discretionary expenses. However, this distribution pattern varies across different salary brackets," the report added.