Beyond the Metros: How Budget 2026 is Unlocking Value in India's Small Cities

It specifically highlighted how tier II and tier III cities are emerging as new growth and investment hubs for homebuyers, investors and manufacturers. The Finance Minister also highlighted the intention to continue the development of growth corridors in these areas.

While the Budget did not update the tax structures or introduce sweeping subsidies, it laid clear emphasis on developing and strengthening cities and towns outside of primary metropolitan hubs. To create new growth engines beyond the traditional megacities of Mumbai, Delhi, and Bengaluru. This direction reflects the vision for the development of tier 2 and tier 3 cities. The development of these areas also helps in increasing employment opportunities and long-term economic resilience.

“The Budget’s focus on tier 1 and tier 2 city growth translates into improved infrastructure, better connectivity and more reliable housing delivery. The government’s push to strengthen lender confidence and accelerate asset monetisation will ensure smoother project completion and enhanced transparency. Over the medium term, these measures will lead to improved liveability, wider housing choices and stronger long-term value for homebuyers investing in well-planned urban locations,” says Vibhor Tyagi, MD, VVIP Group, a real estate and infrastructure development company.

Why tier 2 & tier 3 Cities Matter

Urban centres are widely recognised as engines of economic activity in the country. For decades, large metropolitan cities have absorbed the majority of investment, labour migration and infrastructure. The heavy concentration has overburdened the civic systems in these localities.

In the past few years, tier 2 and tier 3 cities have been seen as the prime hubs to help decongest metros and act as a catalyst for growth across peripheral areas. These cities have the potential to serve as ideal locations for manufacturing, services, logistics and urban transformation.

In the Budget, an emphasis on this translates into a policy focus that aims to harness the potential growth these cities can deliver.

What Are City Economic Regions?

One such important highlight of the Budget 2026 was the introduction of City Economic Regions (CERs). It is a policy instrument which is designed to strengthen economic activity around the tier II and tier III cities, which is based on their specific advantages that they offer. Under this model, each CER will receive an allocation of Rs 5,000 crore over the next five years.

The CER is a results-based financing mechanism that ties funds to measured reforms and developments. The funds will be deployed through a challenge mode approach, where cities will propose their development plans to avail these incentives.

This structure is intended to push for development in peripheral areas in terms of growth. The CER framework includes temple towns and heritage centres, in addition to tier 2 and tier 3 cities.

With the introduction of the CER framework, the government seeks to reduce urban congestion pressures in large main cities, diversify population segmentation, and empower regional growth through industrial and infrastructural growth. This framework aligns with India’s long-term ambitions to be a $7-8 trillion economy by the end of this decade.

This Budget specifically stands out for placing tier II and tier III at par with most developed urban cities in India for the next phase of development. With more such strategic investments, tier II and tier III cities are up for better region planning, policy framework and resilient urban transformation. While many expected the budget to assure the affordable housing segment, no such announcements were made.