Union Budget 2026: What FM Sitharaman said on growth in Tier II & Tier III cities

Finance Minister Nirmala Sitharaman on Sunday presented her ninth consecutive Union Budget speech. The FM introduced city economic regions (CER) and proposed allocation of Rs 5,000 crore per CER over 5 years. "The 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," said Sitharaman. 

The government will now focus on Tier II and Tier III cities, and even temple-towns, which need modern infrastructure and basic amenities, the FM said. 

 "We shall 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," added the FM. 

These cities are rapidly becoming engines of growth after saturation of housing demand in metro cities.

Pyush Lohia, director, Lohia Worldspace said, "Mapping city economic regions and allocating targeted funds is a practical step toward balanced urbanisation. It recognises that smaller cities and temple towns are now emerging as strong demand centres and deserve better infrastructure and basic amenities. The visible shift in home loan growth toward these markets highlights changing buyer preferences, with affordability and long term value becoming key decision drivers.

To convert this momentum into sustainable housing supply, policymakers and developers must work together on scalable infrastructure, faster project approvals and customised financing options for mid income buyers. With focused public investment and stable policy support, housing access and urban livelihoods can improve across the country over the long term."

Manik Malik, CEO of real estate developer BPTP said, "The emphasis on urban mobility, integrated housing initiatives, and infrastructure-led expansion across Tier-1 and Tier-2 cities is expected to support orderly urban growth and strengthen regional market fundamentals over time. The Budget’s measured approach toward enhancing manufacturing competitiveness—through rationalisation of duties, cost efficiencies, and targeted sectoral support—addresses key structural aspects of domestic production. These measures may contribute to broader employment creation and income stability, which are important enablers for consumption-led sectors, including housing, over the medium term." 

According to the Urban Money Homebuyers Credit Pulse Report, Tier-II and Tier-III cities accounted for nearly two-thirds of India’s total home loan volumes last year, signaling a decisive shift in borrowing patterns across the country.

These cities contributed to 64% of India’s total home loan volumes, witnessing a staggering 81% year-on-year growth in borrowing, said the report. 

India’s home loan growth story is no longer centred around the biggest metros. Smaller cities are now shaping the housing finance market, driven by first-time buyers and mid-income households seeking affordability beyond Tier-1 limits.

The Colliers-CII report, "Real Estate @ 2047: Building India's Future Growth Corridors," projects India's real estate market could touch $10 trillion by 2047, with a major share of future retail development expected in these smaller cities.