Urban Development in Budget 2026–27: Ambition Without Capacity

D Dhanuraj and Nikhil Ali at February 6, 2026

From reform intent to growth strategy

Urban development was articulated as one among six reform domains in the previous budget, but it is only in the 2026–27 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 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.

Closing the mission era without a flagship replacement

With no successor mission to the concluded Smart Cities Mission, AMRUT remained the only main urban infrastructure programme in 2025. In the 2026–27 Budget, the transition becomes even clearer: the government is moving away from centrally designed urban missions altogether. This signals a pause in centrally planned schemes and a preference for a more decentralised, market-oriented urban development framework.

Centre’s role shifts from Funder to Facilitator

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. The current 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 versus 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 crores, zero investment is made in urban planning or institutional strengthening and only around ₹45 crore is invested in transport planning.

Urban Transport: Metro-focused investment

Across budgets, metro rail has remained the cornerstone of urban transport investment. While the current budget 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 the budget 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.

The article was originally published in Deccan Herald.

Dr D Dhanuraj is the Founder-Chairman, and Nikhil Ali, Senior Research Associate (Urban), at Centre for Public Policy Research (CPPR).

Views expressed by the authors are personal and need not reflect or represent the views of the Centre for Public Policy Research (CPPR).

D Dhanuraj

Chairman at Centre for Public Policy Research | + posts

Dr Dhanuraj is the Chairman of CPPR. His core areas of expertise are in international relations, urbanisation, urban transport & infrastructure, education, health, livelihood, law, and election analysis. He can be contacted by email at [email protected] or on Twitter @dhanuraj.

Nikhil Ali

+ posts

Nikhil Ali is an Associate, Research at the Centre for Public Policy Research. He completed his graduation in Civil Engineering from Sree Narayana College of Engineering and is a seasoned Civil Engineer with working experience at Tata Realty and Infrastructure Ltd. With a passion for urban planning, he acquired his master's degree in Urban Planning from Hindustan Institute of Technology and Science, Chennai. His expertise lies in Urban Mobility, land use planning/analysis, and water-sensitive planning.

D Dhanuraj and Nikhil Ali

D Dhanuraj and Nikhil Ali and D Dhanuraj and Nikhil Ali