Kerala becomes India’s most aged State, stares at retirement age hike

In RBI's latest 'State Finances: A Study of Budgets of 2025-26', it was estimated that the proportion of the population above the age of 60 in Kerala would cross 20 per cent by 2031. It was supposed to serve as a warning.

Looks like the warning has come a tad too late. The percentage of the elderly in Kerala has already crossed 20 per cent. The National Family Health Survey (NFHS) 2023-24, the sixth and the latest in the series, says it is 20.7 per cent. It was 18.6 in the 2019-21 survey. The NFHS-6 Fact Sheet was released on May 27.

The NFHS-6 data show that Kerala has the highest population of the elderly in the country. Goa is second: 17.2 per cent. And Tamil Nadu third: 16.3 per cent. The creation of a Department for the welfare of the elderly by the UDF government, therefore, could not have come too soon.

At this stage in history, Kerala is caught between extremes. On one side, it has the highest elderly population in the country. On the other, it also has the lowest number of people below the age of 15: 20.3 per cent. In 2019-20, it was 20.6 per cent.

This indicates a decline in fertility and also the possibility of a lower demographic dividend in future as the number of productive age people that could contribute to wealth creation in the state will come down over the years. 

Already, the percentage of productive-age population in Kerala, 41 per cent, is the second lowest in the country. Only Jharkhand is worse off, 41.9 per cent. But Jharkhand has a considerably larger cohort of those below 15 years of age: 30.4 per cent compared to Kerala's 20.3 per cent. Therefore, unlike Kerala, Jharkhand will have more people in the working-age group in the future.

In Kerala's case, the dependent population is on the rise and those who can be depended upon is on the decline. The state's demographic dividend is falling.

This will have huge consequences for the Kerala economy. In an ageing state, the tax base will shrink at a time when public resources will be put to unprecedented strain.

An ageing state will also require greater public spending on healthcare, pensions, and social security. Most studies have found that population ageing leads to an increase in health expenditure of the government. 

Here is what RBI's 'Study of Budgets of 2025-26' says: "The ageing States (Kerala and Tamil Nadu in particular) on average allocate close to 30 per cent of their total social sector spending to pensions, more than youthful and intermediate states. Pension burdens have increased in tandem with the rising share of elderly population in these States."

Citing various studies, the RBI report underscores the severe fiscal implications for an ageing state. "While population ageing has a negative impact on revenue mobilisation due to lower labour force participation and slower growth, States with higher percentages of elderly population require substantial resource allocation towards elderly care, including healthcare, social security, and infrastructure. This poses significant challenges for fiscal sustainability, limiting fiscal policy space and effectiveness," the latest RBI study says.

The increasing proportion of those above 60 can primarily cause two fiscal shocks for Kerala. One, Kerala will have to spend considerably more on healthcare and social security support.

The RBI recommends that ageing states like Kerala "should prioritise healthcare financing reforms, preventive health systems, and public–private partnerships, while rationalising subsidies and non-merit spending to create fiscal space".

Tamil Nadu has implemented measures like doorstep delivery of medical services for elderly households. Since Kerala takes social welfare pensions to the doorstep, free medical services can also be delivered to households, like in Tamil Nadu. 

The second shock would be a decline in labour supply and the consequent lower productivity and economic growth. The RBI says that "healthier ageing could continue to boost labour supply by extending working lives and enhancing older workers' productivity". RBI recommends "increasing the retirement age beyond 60 years in alignment with the improved life expectancy". 

Besides a Department for the Elderly, an increase in pension age has become inevitable. "We need to keep the productive-age cohort economically self-sufficient at least till 59," a senior Kerala government official said. At the moment, the pension age is 56 for government employees and teachers.