Budget 2026 Unveils Major Infrastructure Push for Tier 1 and Tier 2 Cities
Finance Minister Nirmala Sitharaman, in her Budget speech, has made several promising announcements specifically targeting Tier 1 and Tier 2 cities, which the real estate industry is viewing as a highly positive and transformative measure. The budget outlines a strategic shift towards strengthening emerging urban centers beyond the traditional metropolitan areas, with a clear focus on building a future-ready Bharat through enhanced infrastructure and economic connectivity.
Strategic Emphasis on Infrastructure Development
According to the Finance Minister, the upcoming budget will place a strong emphasis on infrastructure development in Tier I and Tier II cities. This initiative points towards a deliberate strategic shift aimed at fortifying emerging urban centers that lie outside the major metros. The overarching goal is to foster regional growth hubs and improve economic connectivity across the entire nation, thereby promoting a more balanced and sustainable urban development model.
Large-Scale Initiatives for Tier II and III Cities
Elaborating on the government's comprehensive infrastructure roadmap, Sitharaman announced a series of large-scale initiatives designed to boost growth in Tier II and Tier III cities with populations exceeding five lakh. These budgetary measures are specifically proposed to support planned urbanization, enhance livability, and create sustainable economic clusters capable of attracting long-term private investment. The Finance Minister revealed that public capital expenditure has been increased to ₹12.2 lakh crore for the fiscal year 2026–27, aligning with the government's continued reliance on infrastructure-led growth as a core economic driver.
Real Estate Investment Trusts and Infrastructure Funds
In a move hailed by industry experts, the Budget has proposed the creation of dedicated Real Estate Investment Trusts (REITs) to accelerate the monetization and recycling of significant real estate holdings of Central Public Sector Enterprises (CPSEs). Complementing this initiative is the proposed Infrastructure Risk Guarantee Fund, which will offer prudently calibrated partial credit guarantees to lenders, particularly during high-risk construction and development phases. This fund is expected to significantly improve access to finance for infrastructure and real estate projects, thereby mitigating financial bottlenecks.
City Economic Regions and Decentralized Development
To promote decentralized economic development, an allocation of ₹5,000 crore over five years has been earmarked for the development of City Economic Regions. These regions are envisioned to function as integrated urban-industrial clusters, supporting employment generation and reducing demographic and economic pressure on larger metropolitan centers. Pyush Lohia, Director of Lohia Worldspace, hailed this budget as a substantial opportunity for a real estate boom in smaller cities, stating, "The government plans to invest money in City Economic Regions. This will help cities that are not as big as the major cities to grow in a more organised way. These smaller cities are becoming places for business, and people are starting to want to live and work there. The government is calling these cities Tier-3 cities. Overall, the Budget provides stability, improves investor sentiment, and lays the groundwork for balanced, sustainable growth across residential, commercial, and infrastructure real estate segments."
Multimodal Connectivity and Logistics Enhancement
According to the Finance Minister, there will be a strong emphasis on multimodal connectivity to bolster economic efficiency. A Coastal Cargo Promotion Scheme aims to increase the share of inland waterways and coastal shipping from the current 6 percent to 12 percent by 2047, thereby improving logistics efficiency and lowering transportation costs. Additional initiatives include:
- A Viability Gap Funding (VGF) scheme for seaplane operations
- The development of new dedicated freight corridors connecting Dankuni in the east to Surat in the west
- The creation of 20 new National Waterways over the next five years
High-Speed Rail Corridors and Skill Development
As per the budget, the government has proposed seven high-speed rail corridors to act as growth connectors between major economic nodes, further enhancing regional connectivity. To support the expanding infrastructure ecosystem, the Budget also announces the establishment of training institutes as Regional Centres of Excellence. These centers are aimed at building a skilled workforce aligned with the sector's long-term needs, ensuring that human capital development keeps pace with infrastructural advancements.
