Union Budget 2026 | Urban development goals reflect ambition without capacity

Budget 2026 shifts urban policy from centrally planned missions to a vision document lacking core institutional frameworks

If Budget 2025 marked the end of the mission era in urban development, Budget 2026 signals the beginning of a more uncertain phase. Cities are now expected to act as economic engines, but are increasingly left to finance, manage, and bear the risks of that ambition. At the same time, the Budget acknowledges that India’s next wave of economic growth will occur outside the largest metropolitan areas, in Tier 2 and Tier 3 cities.

Reform intent to growth strategy

Urban development was articulated as one among six reform domains in the previous Budget, but it is only in this Budget that cities are positioned at the centre of the economic strategy. This shift reflects a transition from treating urban development as an enabling reform area to positioning cities as primary drivers of economic expansion.

The introduction of City Economic Regions (CERs) marks a move from managing cities as administrative units to planning them as integrated economic systems. By focusing on regional agglomerations for labour and production linkages, CERs have the potential to replace fragmented urban growth with more productive agglomerated economies.

Shifting roles

With no successor mission to the concluded Smart Cities Mission, AMRUT remained the only main urban infrastructure programme in 2025. In Budget 2026, the transition becomes even clearer: the government is altogether moving away from centrally designed urban missions. This signals a pause in centrally planned schemes, and a preference for a more decentralised, market-oriented urban development framework.

The introduction of the Urban Challenge Fund and reform-linked incentives in previous years marked an early push towards leveraging private capital and municipal borrowing. This Budget consolidates this approach by reducing direct budgetary support and increasing reliance on bonds, PPPs, and other financial instruments.

The Centre’s role has, thus, shifted from that of a funder to a facilitator, with financial and execution risks increasingly falling on states and urban local bodies. The Infrastructure Risk Guarantee Fund seeks to address early-stage project risks, attract private investment, and reposition urban local bodies from grant recipients to fiscal actors.

Housing vs urban systems

While the policy narrative broadens to urban livelihoods and city economies, housing continues to dominate urban expenditure. The expanded vision articulated in the Budget speech is not matched by proportionate investments in urban planning capacity or institutional strengthening, limiting the ability of cities to translate economic ambition into systemic change. In comparison, while housing schemes like PMAY-U received a total of ₹25,025.05 crore, zero investment is made in urban planning or institutional strengthening, and only around ₹45 crore is invested in transport planning.

Metro-focused investment

Across budgets, metro rail has remained the cornerstone of urban transport investment. Budget 2026 increasingly relies on green financing and other market-based mechanisms, support for non-metro cities, bus systems, and urban transport institutions remains limited. High-speed rail is positioned as a growth connector, but without parallel investment in last-mile connectivity and city-level transport systems, its urban impact may remain uneven.

This imbalance is evident in recent investment patterns. An added sum of ₹30,940 crore was made for constructing 112 km of metro rail, catering to an estimated ridership of about 12 lakh. In contrast, the corresponding investment under the PM e-Bus Sewa scheme was only ₹500 crore for the procurement of 1,500 buses. As the Budget places emphasis on Tier-2 and Tier-3 cities, this bias becomes more pronounced, given that buses remain the most common and accessible mode of public transport in these cities.

What has Budget 2026 missed?

While the Budget makes a strong case for developing City Economic Regions as engines of growth, their success will ultimately depend on efficient service delivery and strong institutional mechanisms at the city and regional levels. These remain the core elements through which the intent of the Budget can translate into outcomes on the ground.

Without parallel investments in governance systems and implementation capability, CERs risk remaining another layer of spatial ambition.

At the same time, creating the scale of economic impact envisioned will require deeper changes in the institutional framework to genuinely attract private investment. While the Budget expects markets to play a larger role, it falls short of articulating the reforms needed to enable this transition.

D Dhanuraj is chairman, and Nikhil Ali is senior associate, Urban Research, at CPPR.

The views expressed above are the author's own. They do not necessarily reflect the views of DH.