Q. In the context of the Indian economy, non-financial debt includes which of the following?

1. Housing loans owed by households
2. Amounts outstanding on credit cards
3. Treasury bills

Select the correct answer using the code given below: (UPSC Prelims 2020)
Answer: 1, 2 and 3
Notes: The correct answer is [D] 1, 2 and 3. In economics, non-financial debt refers to the credit obligations of the sectors that are not part of the financial system.

• Definition of Non-Financial Debt: It consists of credit instruments issued by households, non-financial corporations, and the government. These entities borrow money to fund consumption, investment, or fiscal requirements rather than to provide financial services.
• Housing loans (Statement 1 – Correct): These are debts incurred by households. Since households are non-financial entities, their mortgage or housing loan is a primary component of household non-financial debt.
• Credit card outstandings (Statement 2 – Correct): Similar to housing loans, credit card debt represents consumer credit extended to individuals (households). It is a form of unsecured non-financial debt.
• Treasury bills (Statement 3 – Correct): These are short-term debt instruments issued by the Government of India to meet its fiscal needs. Since the government is a non-financial sector, all its borrowings—including T-bills, Dated Securities, and Sovereign Gold Bonds—fall under non-financial debt.

In contrast, financial debt refers to the borrowings of financial institutions (like banks and NBFCs) which they use to lend further to the non-financial sectors. Monitoring non-financial debt is crucial for the RBI to assess the overall leverage and systemic risk within the economy.