Press Release
Tarushi Parihar
Paridhi Jain
The IMPRI IMPRI Center for Habitat, Urban and Regional Studies (CHURS), IMPRI Impact and Policy Research Institute, New Delhi, hosted an interactive panel discussion on “Cities, Local Governance and Union Budget 2026-27” on February 4, 2026 (Wednesday) at 6:30 p.m. IST under IMPRI 7th Annual Series of Thematic Deliberations and Analysis of Union Budget 2026-27.
The session brought together leading scholars, practitioners, and policy experts to critically examine the implications of the Union Budget 2026–27 for urbanisation, municipal finance, and local governance in India.
Opening Remarks: Budget, Economics and the Urban Question
Prof Chetan Vaidya, Visiting Distinguished Professor, IMPRI; Independent Urban Advisor; Former Director, School of Planning and Architecture (SPA), New Delhi and National Institute of Urban Affairs (NIUA), New Delhi; Independent Director, GIFT City, Gandhinagar, delivered the opening remarks.
He underlined the importance of examining the budget, economics, and urbanisation together, noting that urban governments in India still do not function as effective economic agents due to limited fiscal autonomy, contributing barely 0.5% to the economy. He stressed the need for improved civic behaviour and highlighted the budget’s recognition of time as a critical resource in urban planning.
Prof Vaidya drew attention to the stated focus on Tier 2 and Tier 3 cities, observing that while a population threshold of five lakh was mentioned, the upper limit could realistically extend to cities with populations of up to forty lakhs. He also discussed proposals related to seven high-speed rail corridors, new waterways, a 20% mandate for states to allocate funds to local governance, comprehensive waste management, and the broader emphasis on accelerating urbanisation.
Finance Commissions, Urban Growth, and Fiscal Constraints
Prof Vishwa Nath Alok, Professor of Public Finance, Indian Institute of Public Administration (IIPA), New Delhi, examined the role of Finance Commissions in strengthening municipal governance. Referring to the 16th Finance Commission Report, he explained that under the 74th Constitutional Amendment, the Union Finance Commission is required to work alongside State Finance Commissions to recommend grants for urban local bodies.
He noted that while India achieved 7.4% economic growth in 2025–26, the fiscal space for sectors such as local governance remains limited, with growth increasingly driven by borrowing rather than productive investment. He highlighted that grants to municipalities have been significantly increased in the 16th Finance Commission, with allocations rising sharply compared to the 15th Commission period. Infrastructure-led development, rural-to-urban transitions, and recommendations such as a dedicated seminar for State Finance Commissions and a review committee for centrally sponsored schemes were also discussed.
Urban Inequality, Peripheral Growth and Budgetary Gaps
Prof Mahalaya Chatterjee Professor, Centre for Urban Economic Studies, Department of Economics, University of Calcutta; Visiting Professor, IMPRI, raised concerns about the budget’s limited focus on the urban poor. She noted that while the Economic Survey devoted an entire chapter to urbanisation, the budget did not adequately address growth in peripheral urban areas, leaving much of the responsibility to state governments.
She critiqued the revival of municipal bonds in the Economic Survey without accompanying reforms, cautioned against viewing land as the primary urban resource, and questioned the clarity of concepts such as city economic regions and university townships proposed in the budget. She also pointed to the lack of alignment between the Economic Survey and the Union Budget, describing a clear disconnect between analysis and allocation.
Centrally Sponsored Schemes and Shrinking Urban Allocations
Mr Tikender Singh Panwar, Former Deputy Mayor of Shimla, and Senior Fellow at IMPRI, offered a critical assessment of centrally sponsored schemes and their impact on urban development. He described the budget as a missed opportunity, arguing that allocations to local governments fall short of what rising urbanisation and per capita income trends demand.
He highlighted reductions in flagship schemes, such as PMAY (Housing) and AMRUT, noting that coverage has shrunk in both terms of funding and the number of towns included. He also criticised the disproportionate emphasis on capital accumulation, pointing out that 33% of metro-related budget allocations lack adequate user orientation, limiting their developmental impact.
Governance Disconnects and the Urban Challenge Fund
Professor Tathagat Chatterjee, Professor of Urban Management and Governance, Xavier University, Bhubaneswar, emphasised the need to read the Economic Survey, Union Budget, and Finance Commission reports together. He highlighted persistent disconnects among these three documents, particularly in defining what constitutes “urban” in India.
He welcomed the Finance Commission’s recommendations on enhanced transparency, including mandatory uploading of annual reports by local governments, but criticised the budget for being largely “business as usual”, with cuts across most major urban schemes. While acknowledging the ₹10,000 crore Urban Challenge Fund for Tier 2 and Tier 3 cities and the proposed high-speed rail corridors, he questioned the rationale behind city selection and warned that insufficient fiscal support could hinder meaningful urban transformation.
Conclusion
The panel discussion underscored deep structural challenges in India’s approach to urbanisation and local governance. Speakers highlighted the misalignment between the Economic Survey, Union Budget, and Finance Commission recommendations, the limited fiscal autonomy of urban local bodies, shrinking allocations to key urban schemes, and the growing neglect of peripheral and poorer urban areas.
While the Union Budget 2026–27 acknowledges the importance of cities and local governance, panelists collectively argued that without adequate financial resources, clearer definitions, and stronger coordination across institutions, India’s urban transition risks remaining fragmented and inequitable. The discussion concluded with a call for genuine decentralisation, sustained investment in local governance, and people-centric urban policies to ensure inclusive and resilient urban growth.
IMPRI’s 7th Annual Series of Thematic Deliberations and Analysis of Union Budget 2026-27
IMPRI 7th Annual Series of Thematic Deliberations and Analysis of Union Budget 2026-27
Watch the event at IMPRI #Web Policy Talk
Cities, Local Governance and Union Budget 2026-27
Acknowledgement- This article is written by Tarushi Parihar and Paridhi Jain an Intern at IMPRI.
