The Budget Cannot Ignore Demography, Why India’s Fiscal Future Depends on Regional Realities
Much of the public discussion about the forthcoming Union Budget has focused on growth, tax policy, job creation, and fiscal consolidation. Yet beneath these themes lies a common force shaping India’s economic future: The nation’s demographics.
The Budget, whether explicitly acknowledged or not, is as much a demographic document as it is a fiscal one. Public expenditure and tax policies on health, nutrition, education, housing, employment programmes, and infrastructure need to be calibrated to assumptions about population size, births, and the future labour force. A Budget that does not explicitly link demographic trends to regional labour-intensive growth strategies risks missing the core challenge.
The Scale of India’s Population
India is the world’s most populous country, with an estimated population of around 1.42 billion in 2025. It adds more than 25 million people every year through births alone—more than the entire population of countries such as the Netherlands, Greece, Sweden, and New Zealand.
These aggregate figures, however, mask sharp regional divergences that have direct fiscal implications. A country of India’s size and diversity cannot be treated as a single demographic unit. The challenges of Kerala are not the challenges of Bihar. The opportunities of Tamil Nadu are not the opportunities of Uttar Pradesh.
The Fertility Transition
A majority of Indian states have achieved total fertility rates well below the population-replacement level of 2.1 children per woman, according to the National Family Health Survey-5. The replacement fertility level indicates that the population size will stop growing after some time and will only replace itself. When fertility falls below that level, the population will begin to decline in absolute numbers.
Kerala was the first Indian state to reach replacement fertility in 1988, when the national TFR was still 4, according to the Data for India portal. Tamil Nadu achieved it in 1993 while West Bengal, despite being one of India’s poorest states, reached replacement fertility in 2005.
Four states—Chhattisgarh, Uttar Pradesh, Madhya Pradesh and Bihar—are yet to reach replacement-level fertility according to official data. Uttar Pradesh is projected to exceed the replacement threshold last year, making it a priority to reduce the number of births. Bihar is likely to attain replacement levels last, not until 2039.
Even if fertility rates in these states converge to southern levels, absolute birth rates will remain substantially higher due to sheer demographic momentum, a phenomenon resulting from a large number of young adults entering childbearing years.
Uttar Pradesh and Bihar together account for more than a quarter of India’s population, with a median age in their late twenties, according to estimates based on the 2011 census. In 2023, 31 percent of the 2.2 million total births in India occurred in only Bihar and Uttar Pradesh.
The Budgetary Implications
The budgetary implications are immediate. States with high absolute birth rates face sustained pressure on maternal and child health services, schools, skill development systems, and labour markets. Every new child requires investment in health, education, and future employment. The states with the most children are often the states with the least fiscal capacity.
In contrast, low-fertility states confront a different challenge: Slower growth of the working-age population, rising ageing ratios, and potential labour shortages. Kerala, with its ageing population, faces growing demand for elder care and pension systems. Tamil Nadu must consider how to maintain its workforce as fertility remains low.
Yet India’s fiscal architecture largely treats these distinct demographic realities through uniform policy instruments. The same schemes, the same criteria, the same allocations apply across states with radically different demographic profiles. This one-size-fits-all approach is inefficient and inequitable.
What a Demographically-Aware Budget Would Look Like
A demographically-aware Budget would need to do four things. First, it would differentiate fiscal transfers and incentives based on state-level fertility patterns. Second, it would prioritise investment in maternal health, child nutrition, education quality, and women’s employment in high-birth regions. Third, it would support productivity, elder care, and labour force participation in low-fertility states facing demographic aging. Finally, it would recognise migration as a structural feature of India’s development trajectory and allocate resources accordingly.
Take the example of central maternal health schemes. Should maternal and welfare incentives be differentiated by regional demography, encouraging delayed childbearing, birth spacing, and offering higher incentives for permanent sterilisation in high-fertility states, while avoiding stronger incentives for permanent methods in low-fertility states?
Would such a calibration better align public spending with demographic realities without compromising reproductive choice? At the same time, welfare demand must equally recognise migration by ensuring portability of health and nutrition incentives between home and destination states.
The Marriage and Fertility Question
India’s fertility transition is no longer a given. A recent study by the Pew Research Center found that nearly half of the population aged 15 to 49 had never been married, with women having less control over their own lives. This trend is particularly concerning among younger generations, who are more likely to delay marriage and childbirth.
These social changes have profound demographic implications. Delayed marriage means delayed childbearing, which reduces fertility. But it also means changes in household structure, in labour force participation, in consumption patterns. The Budget must account for these shifts, not assume that the past is prologue.
Conclusion: Demography as Destiny
India’s demographic dividend is often cited as a source of competitive advantage. But a dividend is only valuable if it is invested wisely. The states with the largest young populations are also the states with the greatest need for investment in health, education, and employment. If that investment does not come, the dividend could become a liability.
The Budget cannot ignore demography. It must recognise that India is not one country demographically; it is many. It must calibrate policies to regional realities, not pretend that one size fits all. It must invest where the children are, support where the elderly are, and enable migration where workers need to move.
A Budget that does this will be more than a fiscal document; it will be a strategic plan for India’s demographic future.
Q&A: Unpacking the Demography-Budget Link
Q1: Why is India’s demography relevant to the Union Budget?
The Budget’s allocations for health, nutrition, education, housing, and employment must be calibrated to population size, births, and future labour force. Different states have radically different demographic profiles, requiring differentiated policy responses. A one-size-fits-all approach ignores these regional realities and risks misallocating resources.
Q2: What are the key regional differences in fertility rates?
Kerala achieved replacement fertility (2.1 children per woman) in 1988, Tamil Nadu in 1993, West Bengal in 2005. Four states—Chhattisgarh, Uttar Pradesh, Madhya Pradesh, and Bihar—are yet to reach replacement levels. Bihar is projected to achieve it only by 2039. Uttar Pradesh and Bihar together account for 31% of India’s births.
Q3: What are the budgetary implications for high-fertility states?
States with high birth rates face sustained pressure on maternal and child health services, schools, skill development systems, and labour markets. Investment needs are highest where fiscal capacity is often lowest. Every new child requires long-term investment in health, education, and future employment.
Q4: What challenges do low-fertility states face?
Low-fertility states confront slower growth of the working-age population, rising ageing ratios, and potential labour shortages. Kerala’s ageing population demands more elder care and pension support. Tamil Nadu must consider how to maintain its workforce. These challenges require different policy responses than high-fertility states.
Q5: What would a demographically-aware Budget look like?
It would differentiate fiscal transfers based on fertility patterns; prioritise investment in maternal health, child nutrition, and education in high-birth regions; support elder care and labour force participation in low-fertility states; and recognise migration by ensuring portability of health and nutrition incentives between home and destination states. It would tailor policy to regional reality, not impose uniform solutions.
