Union Budget 2026 marks a decisive shift in India’s urban growth strategy, placing Tier-2 and Tier-3 cities at the centre of economic expansion. Finance Minister Nirmala Sitharaman announced a sustained infrastructure push aimed at strengthening regional urban development through City Economic Regions (CERs), supported by a proposed allocation of Rs. 5,000 crore per region over five years.
The move signals the government’s intent to deepen growth beyond large metros by backing cities with distinct economic drivers, improved connectivity and access to capital. Industry experts believe the approach could reshape real estate demand, logistics networks and commercial development over the medium term.
City Economic Regions Take Centre Stage
Unveiling the CER framework in her Budget speech, Sitharaman said cities would be mapped based on their specific growth engines and supported through a reform-linked, results-based financing model.
“Cities are India’s engines of growth, innovation, and opportunities,” she said, adding that the focus would now extend to Tier-II, Tier-III cities and temple towns that require modern infrastructure and basic amenities. The allocation of Rs. 5,000 crore per CER over five years will be implemented through a challenge mode, encouraging competition and accountability in urban planning.
The government will continue to prioritise cities with populations above five lakh, many of which have evolved into economic hubs but face infrastructure and planning constraints.
Infrastructure Spending as the Growth Lever
The CER strategy sits within a larger capex push. The Budget raised public capital expenditure to Rs. 12.2 lakh crore for FY27, up from Rs. 11.2 lakh crore the previous year. According to Parveen Jain, President of NAREDCO, this increase, coupled with a focus on non-metro cities, is a “far-sighted move towards balanced urban development” that could accelerate real estate activity and urbanisation beyond metropolitan areas.
The Finance Minister also highlighted the government’s decade-long effort to scale public infrastructure using instruments such as REITs and InvITs, along with institutions like NIIF and NABFID.
Connectivity Corridors and Urban Expansion
To strengthen inter-city movement and reduce congestion, the Budget announced seven high-speed rail corridors connecting Mumbai, Pune, Hyderabad, Bengaluru, Chennai, Delhi, Varanasi and Siliguri. These corridors are intended to act as “growth connectors” between emerging urban clusters.
Shishir Baijal, Chairman and Managing Director of Knight Frank India, said the focus on selective growth corridors in Tier-2 and Tier-3 cities, along with improved connectivity across urban economic regions, provides a supportive backdrop for residential and logistics demand over the medium term. However, he cautioned that the absence of real estate-specific fiscal incentives, especially for affordable housing, remains a concern.
Capital Access and Risk Mitigation
To boost private sector participation, Sitharaman proposed setting up an Infrastructure Risk Guarantee Fund to provide partial credit guarantees to lenders during the construction phase. The measure aims to lower perceived risk and crowd in private capital for urban and infrastructure projects.
In parallel, the government plans to encourage large municipal bond issuances by offering an incentive of Rs. 100 crore for single bond issuances exceeding Rs. 1,000 crore. Smaller towns will continue to be supported under the AMRUT scheme, which incentivises issuances up to Rs. 200 crore.
Industry Sees Long-Term Urban Upside
Developers and investors broadly welcomed the clarity around regional growth. Shekhar Patel, MD and CEO of Ganesh Housing, said Budget 2026 places Tier-2 and Tier-3 cities at the heart of the Viksit Bharat vision, strengthening the foundations for employment and enterprise growth beyond traditional metros.
Cities such as Ahmedabad, he said, stand to benefit from improved connectivity, digital public infrastructure and technology-enabled governance, which will shape future-ready urban ecosystems and drive demand for planned residential and commercial developments.
Pradeep Aggarwal, Founder and Chairman of Signature Global, described the Budget as a credible roadmap for India’s next growth phase. He said the combination of higher capex, high-speed rail corridors, national waterways and CER funding would unlock housing demand across new geographies while enabling planned urbanisation.
REITs, Markets and Commercial Real Estate
The Budget’s proposal to recycle CPSE assets through dedicated REITs also drew attention from institutional investors. Ramesh Nair, MD and CEO of Mindspace Business Parks REIT, said Budget 2026 signals that India’s next growth phase will be powered by deeper capital markets and faster infrastructure creation.
According to Nair, easing foreign participation and expanding REIT structures will strengthen long-term capital pipelines, while CERs and high-speed connectivity corridors will enable new business districts and expand opportunities for organised commercial real estate.
Growth Momentum, With Caveats
While Budget 2026 firmly backs decentralised urban growth, experts note that the benefits for housing will depend on execution and complementary policies. The absence of targeted affordable housing incentives remains a gap, even as infrastructure-led development improves long-term fundamentals.
Still, with capital, connectivity and planning converging, Tier-2 and Tier-3 cities appear set to play a far bigger role in India’s urban and real estate story in the years ahead.
