Union Budget 2026 puts Rs 5,000 crore bet on city economic regions to drive urban growth

Union Budget 2026: Finance Minister Nirmala Sitharaman on Sunday unveiled a major urban development push in the Union Budget, announcing the creation of city economic regions (CERs) aimed at accelerating growth in Tier II and Tier III cities and select temple towns.

Presenting the Budget in the Lok Sabha, Sitharaman described cities as India’s engines of growth, innovation and opportunity, and said the new framework would focus on urban centres that need modern infrastructure and stronger basic amenities. Each identified city economic region will receive a proposed allocation of Rs 5,000 crore spread over five years to roll out development plans through a competitive “challenge mode”.

The initiative, she said, is designed to unlock the economic power of urban agglomerations by mapping CERs according to their specific growth drivers, rather than following a one-size-fits-all model.


“An allocation of Rs 5,000 crore per CER over 5 years is proposed for implementing their plans through a challenge mode with a reform-cum-results based financing mechanism,” Sitharaman said.

The finance minister said the government’s urban strategy builds on efforts made over the past decade to scale up public infrastructure, including the use of new financing instruments such as Infrastructure Investment Trusts (InVITs) and Real Estate Investment Trusts (REITs), as well as the creation of institutions like the National Investment and Infrastructure Fund (NIIF) and the National Bank for Financing Infrastructure and Development (NaBFID).

She added that the government will continue prioritising infrastructure development in cities with populations exceeding five lakh—many of which have emerged as key growth centres over time—underscoring their expanding role in India’s economic trajectory.

The CER initiative marks a shift towards outcome-linked urban financing, with an emphasis on reforms, competition and measurable results to drive sustainable city-led growth.