₹1 lakh crore plan to transform cities into ‘growth hubs’: Sitharaman

An urban challenge fund of ₹1 lakh crore for transforming cities into “growth hubs”, ₹15,000 crore SWAMIH 2.0 fund (special window for affordable and mid-income housing) for the construction of 100,000 stuck housing units, and a revamped PM SVANidhi (Street Vendors AtmaNirbhar Nidhi) scheme were the major announcements Union finance minister Nirmala Sitharaman made for the urban sector in her Budget speech on Saturday.

The finance minister said that urban development is among the six key areas where the budget aims at “transformative” reforms, along with taxation, the financial sector, the power sector, mining, and regulatory reforms.

The budgetary allocation to the ministry of housing and urban affairs (MoHUA) increased by 52% as compared to the revised estimate of the current fiscal and by 17% to the budgetary estimate for 2024-25.

The FM also announced the second asset monetisation plan, which aims to enhance government revenue and optimise public assets for FY2025-30 and infuse a capital of ₹10 lakh crore in new projects.

Under the urban challenge fund, Sitharaman said the government would fund 25% of all bankable projects, while 50% of the funding for projects must be from bonds, bank loans and public-private partnerships (PPP).

She said ₹10,000 crore has been earmarked for FY2025-26 and the outlay of ₹1.5 lakh crore for 50-year interest-free loans to states for capital expenditure and infrastructure will continue.

“While Budget 2025 acknowledges the need for inclusive development and economic growth, there is a missed opportunity in prioritising investments that safeguard people and infrastructure from the escalating risks of climate change,” said Jaya Dhindaw, executive programme director of sustainable cities and Director, WRI India Ross Centre.

However, she said initiatives such as the Urban Challenge Fund, designed to position cities as growth hubs, and the support for states to develop infrastructure pipelines present a crucial opportunity. “Embedding climate resilience as a prerequisite for accessing these funds, through measures like blue-green and hybrid infrastructure, can ensure that urban development is both sustainable and future-ready.”

Among the new initiatives, Sitharaman said each infrastructure ministry would be asked to prepare a three-year project pipeline and the states would be urged to do the same. For this, states can seek support from the India Infrastructure Project Development Fund.

“We will start a national geospatial mission to develop foundational geospatial infrastructure and data. Using PM Gati Shakti, this mission will facilitate the modernisation of land records, urban planning, and design of infrastructure projects,” Sitharaman said.

Prabhat Kumar, head of the public finance management at Janaagraha, a non-profit working on local governance, said the allocations signal a much-needed boost for urban development, particularly in attracting private capital for infrastructure. "However, the budget lacks a focus on critical institutional reforms—essential for sustaining rapid urbanisation, bringing private sector participation, and driving long-term urban economic growth. Without robust governance frameworks, financial decentralisation, and stronger urban institutions, these investments risk falling short of their intended impact.”

She also said the PM SVANidhi scheme will be revamped with enhanced loans from banks, UPI-linked credit cards with ₹30,000 limit, and capacity-building support. Already, 6.8 million street vendors have benefitted from the scheme, the FM said. However, the budgetary allocation was decreased to ₹373 crore for the next fiscal compared to the RE of ₹450 crore in the current fiscal.

The central government will also facilitate identity card issuance and registration on the e-Shram portal for gig workers, providing insurance coverage for nearly 10 million gig economy workers under the PM Jan Arogya Yojana, she said. However, there was no mention of the much-anticipated urban livelihoods mission, or Deendayal Antyodaya Yojana – National Urban Livelihood Mission (DAY-NULM) 2.0. The mission has not received any budgetary allocation for the new budget.

Aravind Unni, an expert on urban poverty alleviation policies, said the absence of NULM “was surprising” as it was the only programme working to alleviate urban poverty, which had become worse after COVID and very visible. He also mentioned how urban street vending haats introduced in the last budget have not been continued. “While there’s a lot of mention of big-ticket urban reforms, there is a lack of clarity on policy details as budget is ideally not only about allocations,” he said.

Overall, budgetary estimate for MoHUA has received an outlay of ₹96,777 crore, which is 1.91% of the entire Union budget, marking an increase of 52% as compared to the revised estimate of ₹63,669.93 crores. It is to be noted that MoHUA was the slowest in utilising budgetary allocations of the current fiscal, at 49% until November 2024, compared with other infra-heavy ministries, with the Ministry of Ports and Shipping utilising 76% of the funds, according to the economic survey released on Friday.

As compared to the budgetary allocation for 2024-25 ( ₹82,576.57 crore), the 2025-26 allocation is up by 17%. MoHUA’s budget over the last few years has been hovering around the 2% mark of the total Union budget, with the highest being 2.5% in FY21-22 and approximately 2.2% in FY23-24.

The expenditure budget for the next fiscal has mentioned a new ₹2,500 crore fund for industrial housing.