India’s population pyramid has a broad base with a large young population; the narrower top represents a smaller elderly population. In contrast, Kerala’s population structure is broad at the top, with 24.2 percent of males and 27.5 percent of females aged 60 and above. A few other states, too, have relatively high shares of elderly populations—Goa, Tamil Nadu, Punjab and Himachal Pradesh among them. All these states, which have over 10 percent of their populations aged 60 and above, have a peculiar problem at hand—they face greater financial burdens due to higher spending on healthcare and social services.
To determine tax revenue distribution, the 15th Finance Commission recommended a weightage of 12.5 percent for demographic performance, 45 percent for income distance, 15 percent each for population and area, 10 percent for forest and ecology, and 2.5 percent for tax and fiscal efforts. States like Tamil Nadu and Kerala, that successfully controlled their population growth, saw their share of tax receipts decrease as the devolution formula favoured states with larger populations. The 16th Finance Commission must consider the demographic realities and incorporate the ratio of the elderly to the working-age population as a criterion to promote a more equitable allocation.
The demand for the Finance Commission to account for the principles of fiscal federalism and state-specific needs to revisit the tax allocation formula is justifiable. Experts have noted that such considerations in the devolution formula could significantly alter resource distribution among the states, benefiting those that have been more efficient in population control. It is important for the commission to strike a balance in ensuring that citizens across India receive basic services at comparable costs, regardless of their place of residence. The share of the elderly in the country’s total population has increased significantly—from 5.6 percent in 1951 to 8.6 percent in 2011—and it will continue to rise rapidly in the near future. This growing segment of citizens, which is largely dependent on others, require and deserve more attention in terms of healthcare, pensions and social security. It is the responsibility of governments as much as society to provide for them. Allocating the funds required for the elderly should not be an option, but an inevitable decision. The sensitive call is sensible, too.