CHENNAI: Once celebrated for low fertility rates, which reduced population boom, and rising life expectancy, which is an indicator of development index, Tamil Nadu is now facing a demographic challenge, as the State is among India’s ageing regions, which has serious implications for its public finances.
According to the Reserve Bank of India’s latest report, ‘State Finances: A Study of Budgets of 2025-26’, demo- graphic transition is emerging as a key determinant of fiscal sustainability at the State level. India as a whole is at a demographic inflection point, with a large working-age population and a median age of about 28 years.
However, this national average masks sharp inter-State variations. States such as Tamil Nadu, Kerala, and Punjab have already entered advanced stages of demographic transition, characterised by declining fertility and a growing proportion of the elderly population. In contrast, several northern States continue to remain youthful, with expanding labour forces.
Tamil Nadu is projected to have the second-highest share of elderly population aged above 60 years, accounting for 15.8 per cent of its total population in 2026. Only Kerala, with 18.7 per cent, is ahead of the State. This ageing trend is expected to exert sustained pressure on expenditure, particularly on healthcare, pensions, and social security, the report said.
The old-age dependency ratio in ageing states is significantly higher than the national average, implying fewer working-age individuals to support a growing elderly population.
At the all-India level, the old- age dependency ratio is projected to rise from 17.6 per cent in 2026 to 23 per cent in 2036. In comparison, Kerala and Tamil Nadu are expected to see their dependency ratios rise sharply to 38.3 per cent and 32.7 per cent, respectively, by 2036.
Such demographic shifts could constrain the State’s revenue base over time, as slower growth in the workforce may moderate consumption and income growth, with implications for tax mobilisation. The RBI report notes that ageing states face a narrowing demographic window, unlike youthful states that can still harness a demographic dividend through employment-led growth.
For Tamil Nadu, which has historically invested in health, education and social welfare, the challenge lies in sustaining the quality of these services while managing rising committed expenditure. Pension liabilities and healthcare spending are expected to rise steadily, adding to fiscal pressures even as debt sustainability indicators remain broadly stable.
Calling for policy recalibration to tackle the demographic transition, the report suggests that ageing states need to focus on enhancing revenue capacity, improving expenditure efficiency, and undertaking workforce-related reforms.
Encouraging higher labour force participation, particularly among women and older workers, promoting skill upgradation, and leveraging technology to improve productivity could help partially offset the fiscal impact of ageing.