Private Debt: Threat to Sustainable Development Author :  CA  A. K. Jain Private debt-comprising borrowings by households, businesses, and non-government entities-plays an important role in financing consumption, investment, and economic expansion. When managed prudently, private credit supports growth and innovation. However, excessive or poorly structured private debt can become a serious threat to economic stability and sustainable development. In India, rising private debt levels, combined with structural weaknesses in credit markets and income growth, pose increasing risks to long-term economic resilience. India’s private debt has grown steadily alongside financial deepening and economic expansion. Improved access to credit, expansion of banking and non-banking financial institutions, and increased consumer financing have supported growth. Yet, this expansion has not always been accompanied by commensurate improvements in income stability, productivity, or risk management. As a result, debt burdens have increased faster than repayment capacity in several segments of the economy. Corporate debt represents a significant area of concern. Many firms, particularly in infrastructure, real estate, and capital-intensive industries, have accumulated high leverage to finance long-gestation projects. Delays in project execution, regulatory bottlenecks, and cost overruns have weakened cash flows, impairing debt servicing ability. This has contributed to rising non-performing assets in the financial system, constraining future credit availability and investment. Household debt has also risen, driven by housing loans, consumer credit, and easy access to personal loans. While credit can smooth consumption and support asset creation, excessive household leverage increases vulnerability to income shocks, inflation, and interest rate changes. For households with unstable or informal incomes, debt stress can quickly translate into financial distress, reducing consumption and social well-being. The expansion of non-banking financial companies has further complicated the private debt landscape. While these institutions have improved credit access, particularly for underserved segments, weaknesses in regulation, governance, and risk assessment have created vulnerabilities. Liquidity mismatches and concentration risks can amplify financial stress, as seen during periods of market tightening. High private debt has broader macroeconomic implications. Overleveraged firms and households tend to reduce spending to service debt, dampening demand and slowing growth. Investment declines as firms focus on balance sheet repair rather than expansion. Financial institutions become risk-averse, restricting credit flow and reinforcing economic slowdown. This debt overhang effect can trap the economy in a low-growth cycle. Private debt also interacts with public finance risks. When private sector distress spills over into the banking system, governments are often compelled to intervene through recapitalization or support measures. This transfers private risk to the public balance sheet, straining fiscal resources and limiting development spending. Sustainable development requires preventing such spillovers rather than managing them after the fact. Inequality is another dimension of private debt risk. Access to formal credit remains uneven, with marginalized groups often relying on informal lenders at high interest rates. Debt stress exacerbates inequality and social vulnerability, undermining inclusive growth. At the same time, speculative borrowing by higher-income groups can inflate asset prices, increasing systemic risk. The roots of rising private debt lie in structural factors. Slow income growth, weak job creation, and volatile cash flows reduce repayment capacity. Inadequate credit assessment, regulatory gaps, and misaligned incentives encourage excessive borrowing. Limited financial literacy further increases vulnerability among households and small enterprises. Addressing private debt risks requires a proactive and balanced approach. Strengthening credit assessment, monitoring, and risk management across financial institutions is essential. Regulatory frameworks must evolve to address emerging risks in both banking and non-banking sectors. Transparency and timely resolution of stressed assets can prevent debt accumulation from becoming systemic. Supporting income growth and employment generation is equally important. Sustainable debt servicing depends on stable and rising incomes. Financial literacy initiatives can help households and businesses make informed borrowing decisions. Developing long-term financing instruments and equity markets can reduce overreliance on debt. In conclusion, private debt poses a growing threat to India’s sustainable development when it outpaces economic fundamentals. Debt-fueled growth without corresponding productivity and income gains is inherently fragile. By strengthening financial governance, promoting responsible borrowing, and supporting broad-based income growth, India can ensure that private debt serves as a tool for development rather than a source of instability. ---------------------------------------------------- Author of this article, C.A. Anil K. Jain( caindia@hotmail.com ) is a highly acclaimed Chartered Accountant with over four decades of professional experience. He is widely recognized for his expertise in financial and asset planning, taxation, international investments, and business growth strategies. Beyond advisory work. He actively contributes to national economic discourse through policy representations to the Government of India, frequent appearances on television and radio, and extensive writing. He is also the author of the acclaimed books Bharat: The Development Dilemma and River Water Recharge Wells, reflecting his commitment to India’s economic development and sustainable water solutions.