The report ‘State Finances: A Study of Budgets of 2025-26’ also provides a comprehensive analysis of fiscal position of State governments. 

Key-highlights of report related to demographic transition in India

• Inflection Point: With a median age of 28 years, working-age population is at a historical peak.
• Inter-State divergences:
  • Youthful States: States with a high share of young population (e.g., Bihar, Uttar Pradesh) have a wider window of opportunity.
  • Intermediate States: States like Telangana and Uttrakhand are seeing a narrowing window of opportunity.
  • Ageing States: States like Kerala and Tamil Nadu have crossed the demographic turning point, where share of working-age population has begun to decline.

Fiscal implications of demographic transition on states:

• Shrinking Tax Base: In ageing states, shrinking labour force lowers long-term growth rates, thereby eroding tax base.
• Rising Committed Expenditure: Ageing states face upward pressure on committed expenditure (pensions and interest payments).
  • In 2024-25, ageing states allocated nearly 30% of their social sector spending to pensions.
• Fiscal Vulnerability: Ageing states have higher debt-to-GSDP ratios and higher interest payment-to-revenue receipt ratios.

Policy Suggestions:

• Youthful States: Massive investment in education, skilling, and health is non-negotiable to convert the youth bulge into a productive workforce.
• Intermediate States: Pursue a dual strategy of growth-enhancing investments while gradually building social security and healthcare buffers for the future.
• Ageing States: Harness "silver economy" by extending working lives, raising retirement ages in alignment with life expectancy, and promoting flexible work arrangements for the elderly.