POV on Budget 2026 — Urban infrastructure
Infrastructure development plays a crucial role in supporting the Viksit Bharat vision of the Government of India. The Union Budget 2026 can be viewed as a reset of the approach to city development and its multiplier effect on the economic growth of the country. In continuation of the large requirement of capital for infrastructure development, an increase of the capital expenditure by 8.9 per cent to INR12.2 lac crores has been proposed.
The thrust is to continue to focus on maintaining stability, adopting a reformative approach and sustaining the economy for India to grow. Towards this, initiatives like developing city economic regions, better transporation networks, access to finance and last mile connectivity have been considered.
As the urban agglomerations are growing rapidly, a positive move is the shift from a’city centric’development to a ‘region centric’developmentto improve infrastructure of smaller towns. Developing City Economic Regions is a welcome initiative to harness the power of agglomerations based on thegrowth drivers of each region. However, the
utilisation of the budget of INR5000 crore per region over 5 years would need well structured plans, deeper stakeholder consultations, institutional leadership and actionable implementation plans. Such a utilisation should also be channelised towards emerging areas like development of data centres, multi modal transport systems and climate and resilience led infrastructure in the identified regions.
A sizeable portion needs to be allocated towards urban planning and capacity building at the local Government level for the initiative to be successful through the reform mode.
The momentum of infrastructure growth in the large cities is expected to continue as there will be an unlocking of prime city level real estate through the announcement of recycling of assets owned by Central Public Sector Enterprises and creation of dedicated REITs. Retail investors can now get access to high quality and income generating real assets.
Both freight transportation and passenger transportation have been given equal thrust through the announcement of freight corridors, coastal cargo promotion scheme, modal shift from rail to roadand high speed corridors between cities.
These will go a long way in complementing and balancing the spatial growth of the CERs. Taken together, all these are to be seen as a direct reduction in the logistics cost while providing an integrated approach to urban development.
The role of the private sector in all these areas is crucial. A key concern of the private sector in infrastructure investment has been the lack of a robust risk sharing mechanism. This has been addressed through the announcement of the Infrastructure Risk Guarantee Fund which will act as a partial credit guarantee to the lenders. The effect of this will result in a larger landscape for the private investment in a wider range of infrastructure sectors. Complemented with this, the INR100 crore incentive for municipal bonds for single bond of over INR1000 crore will bring in more ULBs into the bond market to access finance for their projects. A key factor that will shape the shift towards regional centres is the emergence of Tier 2 and Tier 3 cities as a new frontier for data centres.
They act as a better option compared to tier 1 cities and large metros which face space constraints, huge land costs, high cost ofresources and infrastructure constraints. Smaller cities can be an alternative for setting up of decentralised data centres to facilitate Edge computing. This will improve the demand for real estate and the increase the potential for private sector participation.
Overall, these measures should be implemented with a robust action plan tocreate an ecosystem for the CERs combining multi modal transport systems, last mile connectivity, private sector participation, data centre development and access to finance in order to achieve a balanced and sustainable regional growth in agglomerations.
The author is Partner and Urban Infrastructure Industry Leader, Grant Thornton Bharat; views are personal
