Signalling a sharper focus on tier-2 and tier-3 cities, Finance Minister Nirmala Sitharaman on February 1 announced a sustained infrastructure push, with Budget 2026 unveiling a major thrust on regional urban development focusing on the development of city economic regions (CERs), with a proposed allocation of ₹5,000 crore per region over five years to implement their plans through a ‘challenge mode.’
Experts said the focus on selective growth corridors in tier-2 and tier-3 cities, along with improved connectivity across urban economic regions, is expected to provide a supportive backdrop for demand in residential real estate and logistics markets over the medium term.
“Cities are India’s engines of growth, innovation, and opportunities. We shall now focus on Tier II and Tier III cities, and even temple-towns, which need modern infrastructure and basic amenities. This Budget aims to further amplify the potential of cities to deliver the economic power of agglomerations by mapping city economic regions (CER), based on their specific growth drivers. An allocation of ₹ 5000 crore per CER over 5 years is proposed for implementing their plans through a challenge mode with a reform-cum-results based financing mechanism,” she said in her Budget 2026 speech.
She said that during the past decade, her government has undertaken several initiatives for large-scale enhancement of public infrastructure, including through new financing instruments such as Infrastructure Investment Trusts (InVITs) and Real Estate Investment Trusts (REITs) and institutions like NIIF and NABFID.
{{/usCountry}}She said that during the past decade, her government has undertaken several initiatives for large-scale enhancement of public infrastructure, including through new financing instruments such as Infrastructure Investment Trusts (InVITs) and Real Estate Investment Trusts (REITs) and institutions like NIIF and NABFID.
{{/usCountry}}The government will continue to focus on developing infrastructure in cities with over 5 lakh population (Tier II and Tier III), which have expanded to become growth centres, she said.
To encourage the issuance of municipal bonds of higher value by large cities, she proposed an incentive of ₹100 crore for a single bond issuance of more than ₹1000 crore. “The current scheme under AMRUT which incentivises issuances up to ₹200 crore, will also continue to support smaller and medium towns,” she said.
In order to promote environmentally sustainable passenger systems, she also announced that seven high-speed rail corridors will be developed between cities as ‘growth connectors’, namely i) Mumbai-Pune, ii) Pune-Hyderabad, iii) Hyderabad-Bengaluru, iv) Hyderabad-Chennai, v) Chennai-Bengaluru, vi) Delhi-Varanasi, vii) Varanasi-Siliguri.
To strengthen the confidence of private developers as part of the infrastructure push, FM Sitharaman proposed setting up of an Infrastructure Risk Guarantee Fund to provide prudentially calibrated partial credit guarantee to lenders.
“To strengthen the confidence of private developers regarding risks during infrastructure development and construction phase, I propose to set up an Infrastructure Risk Guarantee Fund to provide prudently calibrated partial credit guarantees to lenders,” she said in her speech.
She also said that the government will recycle the assets of central public sector enterprises (CPSEs) by setting up dedicated real estate investment trusts (REITs).
"A scheme for enhancement of construction and infrastructure equipment will be introduced to strengthen domestic manufacturing of high-value, technology-advanced CIE. This can range from firefighting equipment to lifts to tunnel boring machines," she said in her speech.
Experts weigh in on Budget 2026’s infrastructure push
The Finance Minister’s decision to increase capital expenditure from ₹11.2 lakh crore to ₹12.2 lakh crore for FY 2026–27, with a special focus on cities with a population of over five lakh, is a far-sighted move towards balanced urban development. This will act as a strong booster for real estate activity in Tier-2 and Tier-3 cities and accelerate urbanisation beyond metropolitan areas, said Parveen Jain, president, NAREDCO.
Shishir Baijal, International Partner, Chairman and Managing Director, Knight Frank India said, "the focus on selective opportunities in tier-2 and tier-3 growth corridors, and connectivity in urban economic regions, provides a supportive backdrop for demand in residential and logistics markets over the medium term. However, disappointingly, the Budget does not introduce any real estate-specific fiscal incentives, especially to boost affordable housing in India, which has already been a cause of concern for the sector."
The Budget's focus on development of temple towns, and a clear push for Tier-2 and Tier-3 commercial growth together reinforces confidence in real assets and urban expansion, said Anuj Puri, Chairman – ANAROCK Group.
“However, the absence of any direct announcement on affordable housing - particularly around definition reset or fiscal support - is a disappointment, given its importance for urban housing supply and inclusive growth,” he said.
Anshul Jain, Chief Executive – India, SEA, MEA & APAC Office and Retail, Cushman & Wakefield said that the Budget places growing emphasis on the development of tier-II and III cities, creating an additional growth lever for the real estate sector alongside tier 1 markets, which continue to anchor activity across asset classes.
“As capacity tightens in select Tier I locations, occupiers, particularly GCCs and start-ups, are evaluating Tier II cities, supported by access to emerging talent pools, relatively lower real estate costs, improving infrastructure and a better quality-of-life proposition,” he said.
Pradeep Aggarwal, founder and chairman, Signature Global (India), said that “urban development receives a sustained boost with an allocation of ₹5,000 crore per year for five years for City Economic Regions, alongside a continued focus on Tier-2 and Tier-3 cities as emerging growth centres. These measures will enable planned urbanisation, support civic infrastructure, and unlock housing demand across new geographies. Further, accelerated recycling of CPSE real estate assets through dedicated REITs and continued emphasis on InvITs will deepen capital markets, improve liquidity, and strengthen investor confidence across the sector.”
Ramesh Nair, managing director and CEO, Mindspace Business Parks REIT said that “Budget 2026 signals that India’s next phase of growth will be powered by deeper capital markets and faster infrastructure creation. Easing foreign individual participation in Indian equities, alongside dedicated REIT structures for CPSE asset monetisation, strengthens the pipeline for long-term institutional capital across real estate and infrastructure. The push to develop City Economic Regions, supported by high-speed connectivity corridors linking Mumbai, Pune Hyderabad and Chennai expands the addressable opportunity for organised commercial real estate by enabling the formation of new business districts.”