Youthful states build fiscal muscle; ageing states pay pension price

Demographics now drive state revenue, spending, debt: RBI report

- HIMANSHI BHARDWAJ

India’s states are heading towards sharply different budgetary paths as population age structures begin to drive revenue capacity, spending composition, and debt dynamics, according to the Reserve Bank of India’s (RBI's) latest State Finances: A Study of Budgets of 2025-26.

The report groups states into three categories based on the share of people aged 60 and above: youthful (less than 10 per cent), intermediate (10-15 per cent), and ageing (15 per cent or more).

Youthful northern giants like Bihar and Uttar Pradesh are riding a swelling workforce tide, with revenues reaching 19.5 per cent of gross state domestic product (GSDP). In contrast, southern ageing states like Kerala and Tamil Nadu are struggling with pensions consuming 30 per cent of social sector expenditure amid 30 per cent old-age dependency ratios (OADR), according to the report.