One specific programme announced in Budget 2026–27 aims to augment urban infrastructure in Tier II and Tier III cities and temple towns to realise their potential as drivers of growth, innovation and opportunity. Each of these centres will form the nucleus of a City Economic Region (CER), designed to unify surrounding areas into an agglomeration. Every CER is promised an allocation of ₹5,000 crore over a five-year period. The recognition of Tier II and Tier III cities as engines of growth follows the realisation that India’s largest cities, beginning with metropolitan regions, are approaching breaking point in terms of liveability, air quality, solid waste management, mobility, housing stock and urban sprawl.
The high-profile Smart Cities programme, which covered 100 cities with an investment of ₹1.64 lakh crore over a decade, has been quietly wound down. Even in the largest metropolitan areas, governance remains largely vested with State governments, while suburban local bodies lack the basic capacity to perform municipal functions. Mayors have no control over transport, law and order or service utilities under the Nagarpalika law.
Budget 2026–27 introduces a new paradigm for developing smaller cities through a challenge-based method, with financial allocations linked to reforms and results achieved. Under the Swiss Challenge method, an unsolicited project proposal is submitted by a private party, after which it is publicised and competing bids are invited to ensure neutrality and competition.
Funding incentive
Financing urban projects is another focus area of the Budget. The Union government will provide an incentive of ₹100 crore for a single bond issuance exceeding ₹1,000 crore, raising ambition beyond the AMRUT scheme, where bonds of up to ₹200 crore are incentivised. The AMRUT programme will continue to receive budgetary support for small and medium towns. The Budget also proposes tapping Infrastructure Investment Trusts (InVITs) and Real Estate Investment Trusts (REITs) to support Tier II and Tier III cities that have shown signs of growth.
“We shall continue to focus on developing infrastructure in cities with populations of over five lakh, which have expanded to become growth centres,” Finance Minister Nirmala Sitharaman said in her speech. High-value assets of Central Public Sector Enterprises (CPSEs) in various cities have also come into focus, with the government pitching accelerated “recycling of significant real estate assets of CPSEs through the setting up of dedicated REITs”. Vast tracts of unused land owned by public sector enterprises lie in the heart of major metros, with some parcels valued at thousands of crores each.
High-speed rail
The Budget also proposes support for “high-speed” rail corridors as inter-city growth connectors. While details remain unclear, the identified nodes could potentially reduce travel time between Mumbai– Pune, Pune–Hyderabad, Hyderabad–Bengaluru, Hyderabad–Chennai, Chennai–Bengaluru, Delhi– Varanasi and Varanasi–Siliguri. This model could, for instance, speed up travel between Mumbai and Hyderabad with Pune as a transit point.
However, its success would depend on leveraging existing railway infrastructure to operate trains at average speeds of at least 150 kmph. While rolling stock is capable of such semi-high speeds, tracks and signalling systems do not uniformly support them. Work on the ₹1.08 lakh crore Mumbai– Ahmedabad bullet train project, designed for speeds of up to 320 kmph and largely funded by Japan, is ongoing, with a partial stretch expected to open in 2027. The project underscores the long gestation period involved in building a truly high-speed rail network in India and is being implemented by the dedicated National High-Speed Rail Corporation Limited.
