Led by the general government debt, the country's non-financial sector debt grew 11.9 per cent year-on-year to Rs 371 lakh crore, or 170.2 per cent of GDP, in the September 2021 quarter, even as the indebtedness of the households declined marginally, according to a report.

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However, this is lower than the previous fiscal, when it had touched 180.2 per cent of GDP after a three per cent contraction in the nominal GDP during FY21, according to the report by Motilal Oswal Financial Services.

At 180.2 per cent of GDP in FY21, this was the peak as against 155 per cent in FY20. Also, the debt-to-gross domestic product (GDP) ratio contracted to 170.2 per cent of GDP in the June 2021 quarter, with the normalisation of nominal GDP, which grew at 14.7 per cent.

The general government debt (Centre and states combined) has grown strongly by 16.1 per cent in the September 2021 quarter; while non-government, non-financial debt rose at a much slower pace of 7.7 per cent, according to the report.

The total non-financial sector (NFS) debt stood at Rs 371 lakh crore in the September 2021 quarter, up from Rs 356 lakh crore in the March 2021 quarter and Rs 361 lakh crore in the June 2021 quarter.

As much as two-thirds of the rise in debt in the second quarter over the previous quarter was due to the government sector, as household debt growth ebbed, corporate debt growth spiked leading to an overall rise of 11.9 per cent in the second quarter, similar to the 12.2 per cent average growth over the previous two quarters.

Government borrowing has been the key driver of higher debt growth over the past few quarters. General government debt continued to rise at 16.1 per cent in the September 2021 quarter, though the Centre and states debt rose 15.1 per cent and 13.6 per cent, respectively. However, both fell to 57.6 per cent and 29.1 per cent of GDP in Q2FY22, from the 15-year peak of 58.9 per cent and 30.5 per cent in the March 2021 quarter, respectively.

In contrast, non-government non-financial debt rose 7.7 per cent or 83.5 per cent of GDP in Q2FY22, lower than the peak of 90.9 per cent of GDP in FY21, which is the highest growth in nine quarters, but still modest.

Within this, household debt growth softened to a five-quarter low of 9.1 per cent.

Household debt fell to 34.9 per cent of GDP in Q2FY22, from its peak of 38.1 per cent in Q4FY21. Non-financial corporate debt stood at 48.6 per cent of GDP, lower than the peak of 52.8 per cent in Q1FY21, thus marking the lowest level in seven years.

While housing and non-housing debt grew slower, non-housing debt continued to outpace housing debt. Non-housing debt grew 9.7 per cent, which is the slowest in five quarters and accounted for 71.2 per cent of total household debt. Housing debt rose a modest 7.7 per cent, which is the slowest in three quarters. But, this is modest given that the average growth of this debt was 15 per cent in the pre-pandemic decade.

An analysis of non-government non-financial debt suggests that growth by banks, NBFCs (non-banking financial companies) and bonds stood at two-three quarters high, while growth was at a five-quarter high through external commercial borrowings.