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The Union Budget 2026-27 has outlined a renewed urban development strategy that places Tier-II and Tier-III cities, along with major temple towns, at the centre of India's growth agenda. Presenting the Budget in Parliament, Finance Minister Nirmala Sitharaman described cities as engines of growth, innovation and opportunity, and said the government would prioritise regions that require modern infrastructure and basic civic amenities. A key proposal involves mapping city economic regions (CERs) based on their individual growth drivers to unlock the economic power of agglomeration. To support this approach, the government has proposed an allocation of INR 5,000 crore per CER over five years, to be implemented through a challenge-based, reform-linked financing mechanism aimed at delivering measurable outcomes.
The Union Budget for 2026-27 has set out a clear shift in India's urban development priorities, with the government announcing a sharper focus on Tier-II and Tier-III cities as well as prominent temple towns that require upgraded infrastructure and improved civic services. Advertisement
Presenting the Budget in Parliament, Finance Minister Nirmala Sitharaman described cities as India's engines of growth, innovation and opportunity. She said that while large metropolitan centres have traditionally attracted significant investment, the next phase of urban expansion would be driven by smaller cities and culturally significant towns that have strong economic and tourism potential but lag in infrastructure readiness.
According to the finance minister, the Budget aims to further amplify the capacity of cities to generate economic value by leveraging the power of agglomeration. Central to this strategy is the proposed mapping of city economic regions (CERs), which will be identified and planned based on their specific growth drivers, industrial strengths and regional characteristics. This approach is intended to move away from a one-size-fits-all urban model and instead enable customised development strategies aligned with local economic realities.
To operationalise this framework, Sitharaman proposed an allocation of INR 5,000 crore per city economic region over a period of five years. The funding is expected to be deployed through a challenge mode, supported by a reform-cum-results-based financing mechanism. Under this model, cities would be encouraged to undertake structural and governance reforms while ensuring that funding is linked to clearly defined outcomes and performance benchmarks.
The focus on Tier-II and Tier-III cities reflects the government's view that these urban centres are increasingly becoming hubs for manufacturing, services, education and logistics, while also absorbing population growth that might otherwise place pressure on larger metros. Improved infrastructure in these cities is expected to support employment generation, private investment and balanced regional development.
Temple towns have also been specifically identified as part of the urban development push. Sitharaman said these towns require modern infrastructure and basic amenities to manage rising footfalls linked to religious tourism while preserving their cultural and historical significance. India's key temple towns include Varanasi, Ayodhya and Mathura in Uttar Pradesh; Somnath and Dwarka in Gujarat; Gaya and Bodh Gaya in Bihar; and Madurai and Rameswaram in Tamil Nadu, among others.
Beyond urban development, the finance minister made a series of announcements across sectors such as agriculture, finance, health, employment, industry and tourism, reinforcing the Budget's broader focus on inclusive and regionally balanced growth.
Overall, the proposals related to city economic regions and targeted funding signal an effort to deepen urban planning reforms, strengthen infrastructure delivery, and ensure that smaller cities and heritage towns play a more prominent role in India's long-term economic trajectory.
Source - PTI
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