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The National Budget 2025-26 presented on 01 February 2025 by India’s Finance Minister (FM) was preceded by the budget revealed on 23 July 2024. The FM referred to the July 24 budget several times in her 25 Feb budget speech, probably because the earlier one had laid out the government’s principal financial and policy decisions as well as outlays. This budget, therefore, was a continuum.
This article focuses on the Budget proposals having relevance to urban settlements and critically analyses those proposals and their impact on cities.
Paragraph 8 of Budget 25-26 spells out the goals regarding transformative reforms that India needs to essay. These goals, divided over six domains, aim at augmenting India’s growth potential and global competitiveness. The third among them is ‘Urban Development’. The budget recognises the salubrity of cities as an essential precondition in India’s growth story. Incidentally, Urban Development was a priority area in the July Budget as well, which specified seven different urban subjects. They comprised cities as growth hubs, creative redevelopment of cities, transit-oriented development, urban and rental housing, water supply, sewerage and sanitation, street markets and stamp duty. Most of these once again find a mention in the February budget.
It is good to see street vending progressively being recognised as a legitimate activity in the cities. It is a viable source of employment for the urban poor.
Since the urban poor are an increasing constituent of cities, Paras 49 and 50 exclusively focus on them. The budget states that the government will implement a scheme for the socio-economic upliftment of urban workers to help them enhance their incomes, providing them with sustainable livelihoods and achieving a qualitative improvement in their lives. Para 50 takes stock of the PM SVanidhi scheme put into operation in earlier years. The scheme has, till date, provided benefits to more than 6.8 million street vendors, giving them relief from loans that are made available at unaffordable interest rates in the informal loan market. Buoyed by this success, the Budget proposes to re-engineer the scheme by raising the loan limit from the banks, coupled with UPI-linked credit cards with an INR 30,000 limit and assistance in capacity building and skill improvement.
It is good to see street vending progressively being recognised as a legitimate activity in the cities. It is a viable source of employment for the urban poor. However, as a growing number of street vendors contest for urban space, its spatial requirements yet are not fully recognised in city plans. The facilitation of street vending needs multiple enabling measures and the most important of them is to align state planning laws with vending needs. Till such time, fitting street vending into overcrowded urban spaces would continue to be a painful exercise.
Para 57 of the budget, in terms of intent in the urban arena, is the most significant. It refers to proposals in the July 2024 budget and resolves to take them forward. Clarifying further, the Budget proposes that “urban sector reforms related to governance, municipal services, urban land and planning will be incentivised.” The last paragraph of this article returns to analyse this issue in greater detail.
Paras 58 and 59 talk about the Urban Challenge Fund. The Government will set up such a fund of Rs. 1 trillion to implement the proposals for ‘Cities as Growth Hubs’, ‘Creative Redevelopment of Cities’ and ‘Water and Sanitation’. These had been announced earlier in the July 24 Budget. Elaborating on this, Para 59 states that the fund will finance up to 25 percent of the cost of bankable projects. The cities and states will have to participate financially and fund at least 50 percent of the cost through bonds, bank loans and public-private partnerships. Of the long-term total amount of INR 1 trillion, an allocation of INR 100 billion will be made for 2025-26.
As things stand, it is quite evident that much of the growth hubs and challenge funds would get directed towards larger cities. Most other cities of the country do not have the wherewithal to raise municipal bonds or bank loans given their very feeble financial health. Besides, they cannot negotiate a public-private partnership. In this scenario, more of the pile of economic activities would get allocated to larger cities and the all-round development of a very large number of other cities would get stymied. Cities today are carrying a large unfunded mandate and the budget could have been the right place for its acknowledgment. This is a subject that would have to be given deeper thought at the national level.
The resolve to incentivise urban reforms in the areas of governance, municipal services, urban land and planning is welcome. As India urbanises and her cities become progressively bigger drivers of the national economy, it is natural that the national budget should turn more attention towards the cities.
One of the several provisions of the budget that are not direct outlays for cities but will have a healthy impact on them is the expansion of air connectivity. These are detailed in Paras 67 and 68. Since the airports are essentially located in cities, this would be a great fillip to city mobility and business. Para 67 states that the regional connectivity scheme UDAN has satisfied the aspirations of 15 million middle-class citizens to travel by air. The scheme has inter-connected 88 airports and operationalised 619 routes, encouraging the government to launch enhanced regional connectivity to 120 new destinations and transport 40 million passengers in the next ten years. The scheme is also designed to support helipads and smaller airports in hilly areas, particularly in India’s North-East. Besides, greenfield airports will be facilitated in Bihar to meet the future needs of the State. These will be in addition to the expansion of the capacity of Patna airport and a brownfield airport at Bihta.
Tax reliefs to middle-class citizens and the resultant impact that would occur on their greater consumption ability would surely assist the economy of cities. So would the ambitious target of 70 percent women in economic activities. National centres of excellence for skilling, expansion in the capacity of IITs, centres of excellence in artificial intelligence for education as well as expansion of medical education and daycare centres in all district hospitals bode well for urban settlements.
Finally, a word on urban reforms that the Budget mentions. The resolve to incentivise urban reforms in the areas of governance, municipal services, urban land and planning is welcome. As India urbanises and her cities become progressively bigger drivers of the national economy, it is natural that the national budget should turn more attention towards the cities. Besides, the urban subjects cited in the budget are areas where urban reforms have been waiting for decades and are desperately needed. If cities are recognised as one of the pillars of India’s growth story, attention should be riveted towards our cities to get their institutional architecture right. However, this is a subject fraught with serious difficulties, as cooperation would be required from all three levels of governance—the government of India, state governments and urban local governments. Unfortunately, the mention of reforms in the budget is terse. One can understand that in a budget document that must deal with a huge number of issues, a single subject can only find a brief mention. It is, however, hoped that a detailed analysis of what is required and the areas of urban deficit in governance, planning, land and civic services are clearly spelt out in a separate paper and nationally debated.
Ramanath Jha is a Distinguished Fellow at the Observer Research Foundation
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