The Demographic Divide: India's Two-speed Future

Tamil Nadu and Andhra Pradesh's calls for increased birth rates highlight a pressing national concern. Can India leverage its demographic divergence into a unified economic force, or will these contrasting futures strain the nation’s potential?

India's demographic trajectory presents a surprising paradox: while the southern states, once the nation’s economic powerhouses, now face the challenge of aging populations, the northern and eastern states, rich in youthful energy, remain constrained by underdeveloped infrastructure and educational gaps.

The issue reflects a broader trend with profound implications. The south’s once-favourable demographic dividend is diminishing, potentially stalling the very economic momentum that has kept India globally competitive. In the north, younger populations represent vast, untapped potential ‒ but realising this “demographic dividend” will require policy interventions that match the urgency of the opportunity.

There is politics too. The Finance Commission of India allocates central funds to states using a complex but ‘agreed’ formula based on population, income distance, area, forest cover, demographic performance, and tax effort. Previously, the 1971 Census population data was used, but the 15th Commission shifted to the 2011 Census, sparking opposition, especially from southern states, who were concerned that this change was penalising their population control efforts. The highest weight of 45 per cent now goes to income distance, followed by 15 per cent each for population and area. While this formula aims for balanced distribution, the shift proves a disadvantage for states that have achieved socio-economic progress through effective population management.

The Southern Conundrum: A Fading Dividend, Yet not Breathing Hard
The southern states contribute substantially to India’s economy. Though home to just a quarter of the population, they account for a disproportionate share of GDP, and continue to drive growth at a significantly faster pace. States like Tamil Nadu, Karnataka, and Telangana have transformed into high-income, service-oriented economies that are crucial for progress. Investments in social multipliers, technology, and industrialisation have fuelled growth. The socioeconomic indicators are on a par with most developed economies.

However, the southern states are beginning to experience a rapid demographic shift. Declining birth rates and rising life expectancy are leading to an aging population, placing strains on healthcare and pension systems. Slower population growth may reduce economic dynamism, and labour shortages could drive wages higher, reducing productivity, and diminishing competitiveness. As these states pivot from their agrarian roots to knowledge and service-based economies, a shrinking workforce threatens economic momentum and consumption. This demographic shift threatens to not only decelerate economic growth but also diminish the region's pivotal role as a driver of India's overall economic progress.

The southern states are fortifying their economies through investments. Yet, a resilient social infrastructure is essential to fully empower the workforce, particularly women. Continuous upskilling is vital. Migration policies deserve attention, too.

The Northern Opportunity: A Double-edged Sword
Northern and eastern states like Uttar Pradesh, Bihar, West Bengal and Madhya Pradesh boast of a young, working-age population, with vast economic potential. If harnessed, this demography could fuel industrialisation and sustain growth. Yet, a vicious cycle of poverty, low literacy, poor healthcare, and inadequate infrastructure hinders progress. Educational reform is essential, with vocational training playing a key role in equipping the youth with the skills needed for a global economy. Without these foundations, the workforce risks remaining unskilled and underemployed.

Neglecting job creation not only hinders economic growth but also risks social unrest as young people face limited opportunities. Job creation policies must focus on attracting industries and investment by improving infrastructure, combating corruption, and streamlining bureaucratic processes to create a conducive business environment. Similarly administrative reforms, particularly those that enhance the ‘ease of doing business’ matrices can be the growth driver. The northern states can learn from the success of Maharashtra and Gujarat, which have successfully diversified their economies through industrial policies, shifting focus from agriculture to manufacturing and services to create a wider range of employment opportunities.

The southern states should prioritise maximising the potential of their existing workforce rather than focusing on population growth. Female labour force participation, remains low. The real unemployment rate is high, hovering around 25 per cent. This signals an urgent need for innovative and implementable policies that prioritise economic growth and social development, without resorting to calls to promote higher fertility rates. Similarly, the southern states can attract skilled workers from the north and east by offering tax incentives, easing regulations, and creating a business-friendly environment. However, inclusive social policies are crucial to ensure smooth integration of migrants, fostering social harmony and economic growth.

Many believe that the call for higher fertility rates is a strategic move to mitigate the loss of financial resources under the Finance Commission formula, that rewards states with larger populations. Delimitation is a hanging sword too. However, encouraging higher birth rates to tackle demographic concerns could inadvertently place additional burdens on women, limiting advancements in education and economic independence. Instead, the focus should be on developing skills, generating jobs, and supporting working women.

The Finance Commission should also address the concerns raised by the southern states. It should adopt a hybrid and equitable model that balances population metrics with performance indicators such as economic growth, and social outcomes.

Bridging India’s Demographic Divide: A Collaborative Path Forward
A balanced approach is vital to address India’s demographic divide. Southern states with aging populations can offer expertise and resources, while the north provides a steady supply of young workers. Policymakers must craft Investment in soft and hard infrastructure to enable India to harness the north’s youth and the south’s skilled but aging population.

This strategic collaboration can lay a strong economic foundation for inclusive, sustainable growth, making the most of its unique demographic advantage.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the publication.