Aligning Budget with city logistics to ease traffic congestion, pollution

With rapid urbanisation, Budget 2026-27 can strengthen urban logistics through city logistics plans, smart freight systems, digital tools and incentives to reduce congestion and pollution

India is urbanising rapidly and is expected to be the principal contributor to global urban growth over the next 25 years. With an urban population exceeding 540 million, cities and towns currently account for about 35 per cent of the total population of the country — a share projected to rise to nearly 50 per cent by 2050.  

Urbanisation being a key growth driver, the Union Budget 2026-27 can play a critical role in strengthening urban logistics by supporting efficient movement of people and freight, incentivising digital tools for real-time monitoring and assessment, and de-risking projects to attract private investment into urban infrastructure, reducing traffic congestion and pollution in the process. 

Fiscal measures for urban logistics 

The National Logistics Policy 2022 envisages the preparation of city logistics plans integrated with city master plans, along with institutional governance mechanisms such as city logistics committees. Fiscal measures such as the creation of an urban freight infrastructure fund, support for logistics parks, incentives for green freight pilots, financially strengthening urban local bodies for logistics planning and freight-management studies, and the use of digital tools for real-time monitoring of people and freight movement to better identify infrastructure requirements would provide a much-needed stimulus and significantly strengthen urban governance.  

Challenging the cities to perform 

At the same time, incentivising cities through measurable performance metrics — whether for integrating logistics needs with town planning, or improving the efficiency of urban freight movement — is critical. The Budget could motivate cities to compete for annual, performance-linked grants based on demonstrated outcomes rather than proposals alone. 

The last Budget had announced an Urban Challenge Fund to support proposals for the growth and redevelopment of cities.  Leveraging this initiative, policy frameworks could incentivise urban local bodies through clear guidelines and milestones to compete across key urban logistics dimensions, such as: (i) preparation of city logistics plans, (ii) developing urban consolidation and logistics distribution centres on city peripheries, (iii) adoption of innovative technologies for smart freight solutions and, (iv) de-risking private investment in infrastructure such as warehousing, cold storage,  truck terminals and last-mile delivery hubs.  

 

Smart freight management 

The importance of freight management for urban centres is evident from the scale of their inward and outward commodity flows. A study by GIZ (the German international development agency) for Delhi, based on E-way bill data from December 2022, estimated daily goods inflows of approximately 200,000 tonnes and daily  

outflows exceeding 250,000 tonnes. While the city is served by major truck routes, the intra-city freight distribution is largely undertaken by light goods vehicles that criss-cross the city. Notably, around 40 per cent of the freight arrivals into Delhi comprise building material, textiles, and fruit and vegetables.  

These commodities move through wholesale markets, industrial areas, and depots for aggregation and redistribution — within the city, across the region and even for international markets.  

Azadpur Mandi, Asia’s largest wholesale market for fruit and vegetables, is a prominent example, where over 30 per cent of the produce is redistributed to other states. Similar, distinct patterns of freight movement exist for commodities such as textiles, cement, iron and steel, and auto parts — underlining the need for a study of freight movement in all major cities of India. 

Urban consolidation and logistics distribution centres 

Other cities across India present their own stories of complex and distinctive patterns of commodity flows. For instance, Agricultural Produce Marketing Committees in Karnataka were historically located outside urban areas; however, urban sprawls have since absorbed many of these markets into city cores, contributing to city congestion. Establishing urban consolidation and logistics distribution centres on the outskirts of cities — where commodities can be received, sorted and redistributed —  could greatly relieve traffic congestion and pollution in the cities, while enabling more scientific and efficient distribution systems. 

Micro-logistics hubs 

In interactions with municipal commissioners across India, it has been suggested that large logistics parks outside urban areas should be complemented by multiple zonal micro-logistics hubs inside the city, aligned with retail and commercial zones, enabling better spatial distribution and improved operational efficiency. To further reduce urban congestion and pollution, incentives could be provided for end-to-end movement of supply chains using electric vehicles — from aggregation points to zonal mini-hubs. Startups could play an important role in urban logistics, particularly in planning aggregation, distribution, and storage of commodities.  

Urban logistics fund 

While urban areas face common problems, their logistical challenges are often unique, with context-specific requirements for financing — for example, a dedicated transit hub for the Himalayan town of Gangtok; a logistics fund to facilitate high-rise storage and distribution centres in Mumbai; an elevated expressway connecting rail and bus depot in Tirupati to the Tirumala hills; or a multimodal logistics park for Surat to strengthen regional freight connectivity. An urban logistics fund — on the lines of the Urban Challenge Fund — could be operationalised expeditiously for cities to compete and tap into for public-private partnership projects.  

Utilising public transport spaces 

Incentivising pilot projects that repurpose underutilised spaces in railway stations, bus depots, and metro stations to support “mini-warehouses” could significantly enhance logistics efficiency, address urban freight movement challenges, and generate substantial additional revenue. Such initiatives could enable the use of public transport assets for freight movement during lean periods, optimising intra-city commodities flows.  

Targeted support 

The Union Budget could provide targeted support to promote efficient urban logistics in key areas such as investments in digital traffic management tools, incentivising preparation of city logistics plans, enabling public and private investments into urban infrastructure, and supporting capacity building of town planning personnel. 

The writer is former Union labour secretary and former Union special secretary (logistics), Department of  Promotion for Industry & Internal Trade (DPIIT)