What happens to a state's budget when it grows old?

Why does India's greying look so lopsided on a map?

In 2011, no major Indian state had more than 15 per cent of its people aged over sixty years. The maps were uniformly pale. By 2026, Kerala and Tamil Nadu have crossed that threshold, turning dark. By 2036, more than half the states have become ageing societies, while the northern heartland, Bihar, Uttar Pradesh, Madhya Pradesh, Rajasthan, remain youthful or intermediate. The national share of 60-plus people rises from 8.4 per cent in 2011 to 14.9 per cent by 2036.

But Kerala starts at 12.7 per cent and ends at 22.8 per cent; Bihar starts at 6.3 per cent and reaches only 10.9 per cent. The grey wave reaches the south and west first, and it reaches the poorest states last.

How many elderly does each hundred workers actually carry?

Ageing feels abstract until you count the number of elderly every working person must support. By 2026, in Kerala, every 100 people aged 15 to 59 years carry about thirty people above sixty. In Bihar, they carry about fourteen. The national average is about eighteen. This old-age dependency ratioold-age dependency ratioImagine a small town with 100 adults of working age and a number of elders above 60. The ratio is simply how many elders per 100 workers. If there are 20 elders, the ratio is 20. A higher ratio means more older people to care for, which can strain pensions, health services, and tax collections.It is the simplest way to measure how heavy the ageing burden will be on a state's budget and society. Across India, it already ranges from about 14 to 30. is the most direct measure of the pressure on a state’s finances: more elderly means more pensions, more health spending, and fewer working people to pay taxes.

Who will age the fastest between now and 2036?

A state can be young today but racing towards old age. Tamil Nadu’s 60-plus share will rise by 10.2 percentage points between 2011 and 2036, the steepest climb. Kerala adds 10.1 points, West Bengal 9.7, Himachal Pradesh 9.2, Andhra Pradesh 8.8. These are among the states that already have the highest elderly shares, but some intermediate states like West Bengal are gaining speed. Pace matters because it decides how quickly a budget must pivot.

What if we put Kerala and Bihar on the same line?

Kerala in 2026 is roughly where Bihar will not be even by 2036. In 2011, Kerala’s 60-plus share was 12.7 per cent, close to the national average of 8.4 per cent; Bihar was a low 6.3 per cent. By 2036, Kerala reaches 22.8 per cent, a figure Bihar will not touch until well past mid-century. India’s average line sits between them, hiding the sharp divergence. The oldest state and the youngest state are a generation apart, but they share the same constitutional finance system.

Why do older states pay their own way while younger states lean on Delhi?

In 2023-24, the group of ageing states raised 62.1 per cent of their total revenue from their own taxes. The youthful states raised only 37.8 per cent. That gap has persisted for two decades: in 2000-01, the ageing states raised 67.1 per cent, the youthful 38.7 per cent. The ageing states are the fiscally self-reliant ones. They have deeper tax bases, more economic activity, and a larger formal sector. The youthful states, being poorer, depend far more on Delhi.

And what does the mirror image of transfer dependence look like?

Central transferscentral transfersWhen the central government shares its tax collections with states or gives grants for specific schemes, that money is called a central transfer. Much of it is decided by the Finance Commission, which tries to give more to poorer states so they can catch up.Younger, poorer states depend heavily on these transfers. It is not a failure, but it makes their budgets vulnerable to central decisions, and a falling share of own taxes can signal a fading fiscal capacity., the share of state revenue that comes from the Finance Commission’s tax devolution and grants, tell the same story in reverse. In 2023-24, youthful states received 56.1 per cent of their revenue from the Centre, up from 51.4 per cent in 2000-01. The ageing states received only 27 per cent, up slightly from 24.1 per cent. This is partly by design: the transfer system aims to equalise across rich and poor states. But it leaves the youthful states more exposed to central decisions and less in control of their own fiscal fate.

What does every single state’s tax effort look like over three decades?

Group averages hide individual dramas. This set of small charts, one for each major state, shows the own-tax share from 1990-91 to 2023-24. Some, like Telangana and Haryana, have steep climbs; others, like West Bengal, have seen declines. Bihar’s line stays stubbornly low, around 25 per cent. Kerala’s line is high but sliding from its peak. No two states have followed the same path, but the broad pattern endures: the richer and older a state is, the higher the share of its own taxes.

Is the self-reliance map the same as the ageing map?

Yes, nearly. A choropleth of own-tax share in 2023-24 shows a dark green belt running through the south and west, Karnataka, Tamil Nadu, Kerala, Maharashtra, Gujarat, while the northern and eastern states are pale. The map looks almost like the income map and the ageing map overlaid. The places that tax themselves the most are also the places that are greying the fastest.

How rich is each state, actually?

The income map makes the story plain. Per-capita net state income in 2023-24 is about Rs 3.1 lakh in Tamil Nadu, Rs 2.8 lakh in Kerala, against Rs 62,000 in Bihar and Rs 97,000 in Uttar Pradesh. The richest states are four to five times richer than the poorest. And these are precisely the states that are ageing first. Wealth and grey hair have moved together in India, and that will shape the country’s public finances for decades.

Do the ageing states tax their economies harder?

Measure against the size of the economy, and a surprise emerges. As a share of GSDPGSDPGross State Domestic Product: the total value of all goods and services produced within a state in a year. It is the state-level equivalent of India’s GDP. If a state were a country, GSDP would be its GDP.When we express spending or taxes as a percentage of GSDP, we can compare states of very different sizes on a neutral ground. It reveals whether a government is big or small relative to the economy it manages., the own-tax collection of the ageing group has drifted down from about 8 per cent in 2011-12 to about 6 to 7 per cent, while the youthful and intermediate groups have stayed between 6 and 7 per cent. All three groups now tax their economies at almost identical rates. The wide gap in the share of total revenue is not because the ageing states squeeze their people harder; it is because they receive far smaller central transfers. Their self-reliance is mainly the arithmetic of fewer transfers, not heavier taxation.

Which states run the biggest governments relative to their economies?

The youthful, poorer states spend the largest share of their state GDP on running their governments. In 2023-24, the youthful group spent about 17 per cent of GSDP on revenue expenditurerevenue expenditureDay-to-day running costs of the government: salaries, pensions, interest payments, subsidies, and maintenance of roads and buildings. It does not include spending on building new assets like bridges or dams (that’s capital expenditure).Most of the ageing squeeze shows up in revenue expenditure, because pensions and interest are paid from it. All the budget shares in this article are slices of revenue expenditure., while the intermediate and ageing groups both spent closer to 12 per cent. This is not because the poor states are profligate; it is largely because their economies are smaller and the central transfers they receive are large in relation to their own output. A big government relative to a small economy can still be a bare-bones government in absolute terms.

How much government spending does each resident actually get?

Flip from shares to rupees per person, and the picture inverts. In 2023-24, total revenue spending per person was highest in the smaller hill states and special-category states, around Rs 45,000 to 60,000, but in the populous poor states, it was far lower. Bihar spent about Rs 15,000 per person, Uttar Pradesh about Rs 18,000. The ageing, richer states spent substantially more. A resident of Kerala gets roughly two to three times the government spending that a resident of Bihar gets, even before accounting for differences in salaries and prices.

Why do similar budget shares hide vastly different rupees on health?

Health spending as a share of the budget is similar everywhere, about 5 per cent. But because total budgets differ enormously, the actual rupees per person vary wildly. In 2023-24, the richer states spent several times more per person on medical and public health than the poorer states. A person in Kerala or Tamil Nadu gets far more in health from the state government than a person in Bihar or Uttar Pradesh. The same slice of a larger pie yields a much bigger piece.

How much of the running budget is already locked in?

As a state ages, more of its day-to-day spending is pre-committed. From 2000-01 to 2023-24, the youthful states cut the share of revenue expenditure going to interest and pensions from 28.8 per cent to 23.9 per cent. The ageing states, by contrast, have stayed stuck near a third, about 32 per cent. In Kerala, the committed share was about 37 per cent in 2023-24. For every rupee the state government spends on running itself, 37 paise are already pledged to past lenders and retired employees, leaving little room for new schools, health centres, or social transfers.

Where is the budget most pre-committed right now?

A map of committed spending in 2023-24 shows the highest shares in the old and indebted states. Punjab, with its legacy debt, lights up alongside Kerala, West Bengal, Himachal Pradesh, and Assam. These states, whether through past borrowing or past government hiring, have left their budgets rigid. In some, interest alone is a massive burden; in others, pensions are the weight.

Do young states still put more money into schools?

Yes. In 2023-24, the youthful states spent about 18 per cent of their revenue budget on education, compared to about 15 per cent in the ageing states. This gap has persisted and even widened over two decades. It makes sense: young states have more children and thus a larger education need. However, a higher share does not guarantee more rupees per child, because the youthful states’ overall budgets are much smaller.

The per-child spending could still be far less. This is where the demographic window offers a clear opportunity: invest while the cohort is large.

Do ageing states pour more into health?

Surprisingly, no. All three demographic groups spend only about 5 per cent of their revenue expenditure on medical and public health. The ageing states ran marginally ahead for most of the 2000s, but by 2023-24 the lines had converged, and the ageing group was in fact slightly the lowest. Health budgets serve all ages, and the real fiscal cost of an ageing population is not hospitals; it is pensions. This null result demonstrates that the immediate budget pressure from ageing shows up in committed expenditure, not in direct health outlays.

Which states already see pensions eating their budget?

In 2023-24, pensions alone consumed about 22 per cent of revenue expenditure in Himachal Pradesh. Assam, Kerala, Punjab, and Uttarakhand also rank high. Today’s pension bill is a product of past government hiring and the defined-benefit Old Pension SchemeOld Pension Scheme (OPS)A defined-benefit pension scheme in which the government promises retired employees a fixed monthly amount, typically half of their last drawn salary, with adjustments for inflation. It increases long-term liabilities.Several Indian states have reverted to OPS from the newer contributory National Pension System, a political choice that will raise future pension bills. (OPS). Several states that had shifted to the contributory National Pension System (NPS) have reverted to OPS, a choice that will lock in higher future liabilities. The pension map is the clearest symptom of the ageing squeeze, and the OPS-NPS tug-of-war shows how political choices can magnify the demographic challenge.

How wide is the demographic window, really?

India’s old-age dependency ratio, the number of elderly per 100 working-age people, drifts up gently from 13.8 in 2011 to nearly 16 by 2021, then starts climbing faster, reaching 23 by 2036. The window to prepare is roughly one generation wide. The easiest fiscal years are the present. Every year from here, the support ratio rises, and the fiscal space narrows. This national line hides the fact that some states have already entered their steep climb, while others are still on the flat part.

Who strengthened their tax base while the window was open?

The final test for the states is whether they boosted their own-source revenue while their populations were still young. This chart shows the change in own-tax share between earlier and later periods. Some states, like Haryana and Telangana, have clearly strengthened their tax effort. Others, like West Bengal, have seen their own-tax share shrink. For the poorest youthful states, the period ahead is critical: they must build revenue capacity before their own age wave arrives. The divergence in past performance suggests that building fiscal muscle is a policy choice, not an automatic dividend.