New Delhi: Finance Minister Nirmala Sitharaman Sunday has signalled a renewed push towards Tier II, Tier III cities and temple-towns in the Union Budget 2026-27, positioning them as the next engines of economic growth.
Presenting the Budget in Parliament, Sitharaman said cities are “India’s engines of growth, innovation, and opportunities”, but emphasised that the next phase of urbanisation must move beyond large metros. “We shall now focus on Tier II and Tier III cities, and even temple-towns, which need modern infrastructure and basic amenities,” she said.
At the core of the urban push is the proposal to map City Economic Regions (CERs)—urban clusters defined by sector-specific growth drivers. To make this operational, the government has proposed an allocation of Rs 5,000 crore per CER over five years, to be disbursed in challenge mode with a reform-cum-results based financing mechanism.
“This Budget aims to further amplify the potential of cities to deliver the economic power of agglomerations,” Sitharaman said, adding that CER funding will follow a “reform-cum-results-based financing mechanism”.
“We shall continue to focus on developing infrastructure in cities with over 5 lakh population (Tier II and Tier III), which have expanded to become growth centres,” she said.
The shift comes amid concerns flagged in the Economic Survey 2025-26, which noted that while India’s urban population has expanded rapidly, especially in large cities, this has “not translated proportionately into higher productivity, liveability or global economic influence”. The survey had pointed out deficits in mobility, land, sanitation and fragmented urban governance as key obstacles limiting the economic returns from urbanisation.
Urban governance experts, while welcoming the budget’s emphasis on cities as growth hubs, flagged concerns over the exclusion of large metropolitan regions from funding and on ground implementation of schemes.
Srikanth Vishwanathan, CEO of Janaagraha, a non-profit organisation dedicated to transforming the quality of life in India’s cities and towns, said the Union Budget has been “headlining the aspect of economic growth and urbanisation” for the last three years, but without tangible outcomes.
“Hopefully, this time around, they will actually back it up with funding and a scheme to get things going on the ground,” he added.
Shishir Gupta, senior fellow at the Centre for Social and Economic Progress (CSEP), told ThePrint, the finance minister was right to stress the role of urban agglomerations and tailor policy to city-specific strengths.
“The FM has correctly pointed out cities as growth hubs. Also, the focus on urban agglomerations based on their growth drivers is the way to go,” Gupta said. “Some cities are service-oriented, while some are manufacturing-driven. Consequently, their requirements are different.”
However, he argued that limiting reform-based funding to Tier II and III cities could constrain India’s broader urban growth story.
“This should have included the biggest cities, since they are also short of funds, account for about a third of India’s GDP and over the last 20 years, these metro regions have grown faster than India’s GDP,” Gupta said, adding that, “for India to leverage its cities, it needs to improve the quality of living in its biggest urban centres”.
Complementing the financing push, Sitharaman also announced seven high-speed rail corridors to act as “growth connectors” between major city pairs. These include Mumbai–Pune, Pune–Hyderabad, Hyderabad–Bengaluru, Hyderabad–Chennai, Chennai–Bengaluru, Delhi–Varanasi, and Varanasi–Siliguri.
“In order to promote environmentally sustainable passenger systems, we will develop seven high-speed rail corridors between cities as growth connectors,” she said.
(Edited by Viny Mishra)
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