How Budget 2025 empowers India’s cities as engines of economic growth

The Union Budget 2025, presented by Finance Minister Nirmala Sitharaman, emphasised municipality improvement arsenic 1 of the six domains for transformative reforms. This renewed absorption connected municipality areas successful the fund points to the government’s committedness to empowering cities arsenic a captious constituent of India’s economical and societal development. 

Let’s unpack what the fund means for municipality areas and however municipality section bodies (ULBs) concern municipality infrastructure projects successful Indian cities.

Budget and municipality development

In the 2025-26 budget, the Ministry of Housing and Urban Affairs (MoHUA), the nodal ministry astatine the national level for lodging and municipality affairs, has been allocated Rs. 96,777 crore, accounting for 1.91% of the full estimated expenditure. 

In caller years, budgetary allocation for municipality improvement has seen a dependable emergence — from 50,000 crore successful 2021 to 79,000 crore successful 2024 and 96,777 crore successful 2025. This dependable summation successful budgetary allocation is singular arsenic it provides overmuch impetus for municipality development. 

Several cardinal schemes, specified arsenic Pradhan Mantri Awas Yojana (PMAY-Urban), which focuses connected affordable municipality housing; the Smart Cities Mission, which focuses connected creating astute cities; and the Atal Mission for Rejuvenation and Urban Transformation (AMRUT), which focuses connected h2o and sanitation infrastructure, are recipients of these budgetary allocations. 

In caller years, allocations person besides gone to municipality transport projects, peculiarly Metro obstruction and Mass Rapid Transit projects, with the nonsubjective of transitioning to sustainable mobility. Moreover, to boost incomes for the municipality poor, a revamp of the Prime Minister Street Vendors AtmaNirbhar Nidhi (PM SVANidhi) –  the strategy that focuses connected improving thoroughfare vendor livelihoods by providing them with low-cost loans and involvement subsidies – was besides announced. 

The fund besides introduced the constitution of an “Urban Challenge Fund” that volition mobilise Rs. 1 lakh crore to alteration cities. Under this fund, proposals shall beryllium evaluated on 3 categories: “Cities arsenic maturation hubs, originative redevelopment of cities, and h2o and sanitation projects.” The money volition concern up to 25% of the outgo of bankable projects, with a stipulation that astatine slightest 50% of the task outgo is sourced from bonds, slope loans, oregon Public-Private Partnerships (PPPs). 

The money aligns intimately with the flagship missions of the Ministry, specified arsenic Smart Cities and AMRUT, and focuses connected promoting innovative municipality redevelopment projects and improving municipality infrastructure successful large cities.

Public-Private Partnerships for municipality development 

Through the Urban Challenge Fund, the fund besides points to a originative concern betwixt Urban Local Bodies and backstage enterprises to enactment successful municipality improvement projects. A akin model was besides explored successful the Smart Cities Mission, wherein backstage enterprises were invited to partially concern citywide oregon area-specific projects.

Structuring the Urban Challenge Fund to see backstage endeavor information is simply a awesome to empower and amended the fiscal autonomy and capacities of Urban Local Bodies to rise their ain sources of concern to money municipality improvement projects. As the investigation by PRS Legislative Research points out, the bulk of ULBs’ gross comes from cardinal and authorities authorities grants. 

With respective limitations successful presumption of their municipality governance (such arsenic implicit autonomy and devolution of responsibilities from authorities governments), ULBs deficiency resources and capableness to make their ain revenue. This means that determination is an accrued dependency connected cardinal and authorities authorities funds to concern their municipality improvement projects oregon adjacent amended existing municipality infrastructure.

What are the main gross sources of ULBs?

The main gross sources of ULBs tin beryllium chiefly categorised arsenic taxation and non-tax revenues. Tax revenues chiefly see spot tax, nonrecreational tax, and amusement tax, portion non-tax revenues see idiosyncratic fees specified arsenic parking fees, h2o proviso fees, licence fees, and rental income from municipal property. 

For example, successful the 2021-22 fiscal year, the Brihanmumbai Municipal Corporation (BMC) had 19% of its gross from tax, 54% from fees and idiosyncratic charges, and the remaining from different sources of income. In comparison, the Greater Chennai Corporation (GCC) generated 80% of its income from taxation sources and the remaining 20% from different sources of income. 

These percent mixes tin alteration from metropolis to metropolis depending connected aggregate factors specified arsenic the capableness to cod taxes successful a timely and businesslike manner, pricing municipality infrastructure services rationally (in instrumentality achieving improved work delivery), and the quality to make income from different sources specified arsenic parking fees, advertisements, rental income, and involvement income. 

While ample cities person a wider taxation basal and capableness to make revenues, smaller cities person to trust connected grants from cardinal and authorities governments. For example, successful 2021-22, 57% of Kochi Municipal Corporation’s gross came from gross grants, contributions, and subsidies. The Central Finance Commission (CFC)’s Performance Fund is an illustration of a assistance received by the Kochi Municipal Corporation successful the twelvemonth 2022-23.

How municipality section bodies tin rise funds

There are respective marketplace mechanisms done which ULBs tin rise finance. The astir salient illustration of this is municipal bonds, wherever ULBs contented bonds to concern their infrastructure projects. Ahmedabad Municipal Corporation was 1 of the archetypal ULBs successful India to contented a municipal enslaved to work its h2o and sanitation projects. 

Following suit, galore specified cities person floated akin bonds, and successful erstwhile years, the municipalities of Indore, Pune, Rajkot, Greater Hyderabad, Ahmedabad, and Lucknow person each issued bonds for financing their infrastructure projects. ULBs tin besides rise loans from fiscal institutions specified arsenic HUDCO, the World Bank, etc., for circumstantial projects. 

The Urban Challenge Fund points to the mechanics of public-private partnerships (PPPs) to concern municipality improvement projects. A cursory glimpse astatine the database of public-private concern projects successful India shows that astatine slightest 5-10% of the full projects are municipality projects successful the fields of water-sanitation and transport. These projects not lone bring backstage concern onboard, but besides facilitate expertise and capabilities from the backstage sector, thereby improving infrastructure and work transportation successful municipality areas.

The municipality absorption successful the Union Budget 2025-26 marks a important measurement towards strengthening India’s cities arsenic engines of economical maturation and societal transformation. By prioritising infrastructure investment, encouraging Urban Local Bodies to diversify their gross streams, and fostering public-private partnerships, the fund lays the groundwork for greater fiscal autonomy and sustainable municipality development. As India continues its accelerated urbanisation, these measures volition beryllium important successful transforming cities into much livable, inclusive, and vibrant spaces for their citizens.

Post Read Questions

What is the value of the municipality absorption successful the Union Budget 2025-26?

How does the fund purpose to fortify Indian cities arsenic engines of economical maturation and societal transformation?

What measures does the fund suggest to heighten infrastructure concern successful municipality areas?

Is it important for Urban Local Bodies to diversify their gross streams? Why?

(Jacob Baby is simply a doctoral researcher successful Concordia University, Canada, and explores matters related to municipality readying successful India.)

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