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The recent surge in GDP figures brought a wave of optimism, yet concerns loom as private consumption growth remains lacklustre. Despite a substantial rise in personal loans, indicating robust borrowing activity, the anticipated increase in consumer spending has not materialized. Bankers speculate that a significant portion of these borrowed funds is either directed toward repaying existing loans or invested in the stock market for speculative purposes. Individuals might also opt for personal loans to bridge the financial gap needed for down payments on home and vehicle loans.

According to Reserve Bank of India (RBI) data, personal loans have experienced a substantial growth of 30% in September, 31% in August, and 32% in July. However, private final consumption, encompassing expenditures on goods and services, only grew by a modest 3.1% in the second quarter of the fiscal year. The discrepancy raises questions about the actual utilization of personal loans, as borrowers often cite “personal use” without specifying the end purpose.

Despite the disconnect between personal loan growth and consumer spending, experts suggest that low private consumption could be seen as a positive indicator for the central bank. The tepid spending, coupled with elevated personal loan growth, reduces the risk of economic overheating while minimizing concerns related to generalized inflation, balance of payments, and currency stability.

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