In a significant push for regional development, the Union Budget 2026-27 has unveiled a comprehensive plan to transform tier-II and tier-III cities across India through the creation of City Economic Regions (CERs). Finance Minister Nirmala Sitharaman announced an allocation of Rs 5,000 crore per region over five years, targeting seven identified CERs to foster sustainable growth and orderly urbanisation.
Seven City Economic Regions Identified for Development
The government has pinpointed seven strategic locations for the CER initiative, focusing on cities with strong economic potential. These include:
- Bengaluru
- Surat
- Varanasi
- Visakhapatnam
- Pune
- The tricity cluster of Bhubaneswar-Puri-Cuttack
- The tricity cluster of Coimbatore-Erode-Tirupur
Officials emphasized that the primary objective is to amplify economic power through agglomerations by leveraging specific growth drivers unique to each region.
Focus on Modern Infrastructure and Basic Amenities
During her Budget speech, Finance Minister Nirmala Sitharaman highlighted the government's renewed focus on tier-II and tier-III cities, including temple towns that require modern infrastructure and essential amenities. She stated, "This Budget aims to further amplify the potential of cities to deliver the economic power of agglomerations by mapping city economic regions based on their specific growth drivers."
The project will be implemented through a "challenge mode" with a reform-cum-results based financing mechanism, ensuring accountability and performance-oriented development.
Budget Allocations and Strategic Shifts
The Finance Ministry has allocated Rs 2,000 crore for CERs and regional medical hubs under a new scheme for the fiscal year 2026-27. This allocation gains significance as it aligns with Prime Minister Narendra Modi's directive from last year, which emphasized improving infrastructure in existing cities rather than developing new ones.
Additionally, the government has earmarked over Rs 85,222 crore for the Housing and Urban Affairs Ministry in 2026-2027, marking a substantial 49.5% increase from the current year's revised estimate of Rs 57,203.8 crore. A major portion of this allocation is directed towards Metro Rail projects, with funding rising from Rs 27,450 crore in 2025-26 to Rs 28,740 crore.
Continuation of Urban Development Initiatives
This year's announcement builds on previous urban development efforts. Last year, the government introduced a Rs 1 lakh crore Urban Challenge Fund (UCF) aimed at creative redevelopment of cities, along with water and sanitation projects. Although Rs 10,000 crore was allocated for FY 2026, the fund has not yet been operationalized. The Budget for 2026-27 has allocated a similar amount for the UCF, indicating ongoing commitment to urban transformation.
The CER initiative represents a strategic shift towards decentralized growth, aiming to reduce pressure on metropolitan areas while boosting economic activity in emerging urban centers. By focusing on tier-II and tier-III cities, the government seeks to create balanced regional development, enhance quality of life, and stimulate job creation across diverse geographical landscapes.
