Budget 2026: FM allocates ₹5,000 crore to develop tier-II, tier-III cities

Finance Minister Nirmala Sitharaman pitches tier-II and tier-III cities as engines of growth, rolling out reform-linked funding for city economic regions to drive balanced urban development

Finance Minister Nirmala Sitharaman on Sunday unveiled a major push for city-led urban development in the Union Budget 2026, announcing fiscal support for development of Tier-II and Tier-III cities, along with temple towns. The government allocated ₹5,000 crore over five years per city economic region (CER) through challenge mode, with a reform-cum-results based financing mechanism, said Sitharaman in her Budget speech.

 

“Cities are India’s engines of growth, innovation, and opportunities. We shall now focus on Tier-II and Tier-III cities, and even temple towns, which need modern infrastructure and basic amenities,” the minister said.

 

As India aims to become the third-largest economy in the world, a government policy focusing on lesser-developed cities would ensure uniform growth across the country. Sitharaman said Budget 2026-27 aims to amplify the potential of cities to deliver the economic power of agglomerations by mapping CERs, based on their specific growth drivers.

 

 

India should continue to focus on developing infrastructure in cities with over 5 lakh population (or Tier-II and Tier-III cities), which have expanded to become growth centres, she added.

 

“During this past decade, our government has undertaken several initiatives for large-scale enhancement of public infrastructure, including through new financing instruments such as Infrastructure Investment Trusts (InVITs) and Real Estate Investment Trusts (Reits), and institutions like National Investment and Infrastructure Fund (NIIF) and National Bank for Financing Infrastructure and Development (Nabfid),” said Sitharaman.

 

Experts say the sustained increase in public capital expenditure, and the focus on CERs reflect an intent to drive more balanced and outcomes-led urban development beyond metros.

 

“The effectiveness of these cities will depend on how well physical infrastructure is supported by intelligent digital systems. As regional cities expand, integrated platforms for public safety, traffic management, emergency response, and data-led governance will be critical to ensure reliability, efficiency, and accountability at scale,” said Aalok Kumar, president and chief executive officer (CEO) at NEC Corporation India.

 

The focus on developing cities as economic regions is in line with the recommendations contained in the Economic Survey for 2025-26. The Survey had also highlighted that cities are India's growth engines, with 1,036 km Metro and Regional Rapid Transit System (RRTS) operational across around 24 cities, and door-to-door collection of municipal solid waste expanded to 98 per cent of urban wards by 2025-26.