Introduction
How cities evolve will shape the contours of India’s battle against climate change. Urban areas already generate over 60 percent of national GDP and will absorb nearly two-thirds of population growth by 2050. Yet they also concentrate energy demand, emissions, air pollution exposure, and climate-related economic losses. Heatwaves, floods, water stress, deteriorating air quality, and climate-sensitive disease burdens are no longer episodic shocks; they are fast becoming structural constraints on urban productivity, public health, and infrastructure performance.
Climate change is intensifying long-standing urban development deficits. Rising temperatures are driving surges in cooling demand while exposing the fragility of power distribution systems. Extreme rainfall is overwhelming drainage networks and contaminating water supplies, even as chronic scarcity threatens nearly 30 Indian cities with acute shortages by mid-century. Air pollution being among the leading public health risks in urban India is further aggravated by climate conditions that trap pollutants for longer durations. Together, these intersecting pressures underscore a fundamental reality: urban climate resilience is not an environmental add-on, but a development imperative.
The Union Budget remains one of the state’s most consequential instruments for shaping India’s urban trajectory. Its impact lies not only in the quantum of allocations, but in whether public spending strengthens or weakens urban systems—energy, water, transport, housing, health, and waste management—that determine everyday resilience. As India advances towards Viksit Bharat 2047, the ability of its cities to absorb climate shocks without eroding growth will be decisive. The Union Budget 2026–27 therefore serves as a critical test of whether climate ambition is being translated into resilient urban outcomes where it matters most on the ground—in India’s cities.
Air Pollution: Incremental Allocations Amid a Growing Urban Health Emergency
- The Union Budget 2026–27 reflects a persistent disconnect between the scale of urban air pollution risks and fiscal prioritisation. As climate change intensifies heatwaves and atmospheric stagnation, Indian cities are experiencing longer and more severe pollution episodes, yet air quality remains marginal within urban development planning, limiting cities’ ability to treat clean air as a public health and productivity imperative rather than an environmental externality (Figure 1).
Figure 1: Top 10 Most Polluted Cities in India by PM 2.5 Concentration (2025)
Source: Tracing the Hazy Air 2025: Progress Report on National Clean Air Programme (NCAP), Centre for Research on Energy and Clean Air .[1]
- While the MoEFCC’s overall allocation increased from ₹3,481.61 crore in FY 2025–26 to ₹3,759.46 crore in FY 2026–27, the Control of Pollution scheme, including the National Clean Air Programme (NCAP), declined by ₹209 crore to ₹1,091 crore.[2] This contraction undermines city-level implementation capacity at a time when pollution sources such as transport, construction, and waste burning are expanding alongside climate stress, highlighting the need for sustained, city-specific emission reduction financing.
- The allocation for the Commission for Air Quality Management (CAQM) fell to ₹26 crore from ₹38.98 crore in the previous Budget Estimate, constraining its ability to coordinate inter-state air-shed management for the National Capital Region, where climate-driven pollution spillovers increasingly transcend municipal and state boundaries.[3]
- The Central Pollution Control Board’s allocation saw marginal adjustment, reinforcing a focus on monitoring rather than mitigation. For cities, this perpetuates a compliance-heavy approach that lacks adequate investment in source apportionment, modelling, and enforcement tools essential for linking air quality management with urban transport, land use, and climate adaptation planning.
Clean Energy: Strong Capacity Signals, Weak Urban Reliability Focus
- The Union Budget 2026–27 positions clean energy as a central pillar of urban growth at a time when installed renewable capacity has crossed 260 GW.[4] For cities facing rising electricity demand from cooling, mobility, and digital infrastructure, this emphasis signals intent but falls short of embedding energy planning within broader urban resilience frameworks (Figure 2).
Figure 2: India’s Total Installed Capacity by Source (as of 31 December 2025)
Source: Environment and Climate Change: Building a Resilient, Competitive and Development-driven India, Economic Survey 2025-26[5]
- The allocation to the Ministry of New and Renewable Energy rose to ₹32,914 crore, a 30-percent increase over last year’s revised estimates.[6] However, the emphasis remains skewed towards generation capacity rather than strengthening urban distribution networks, grid flexibility, and reliability critical for sustaining city services during heatwaves and extreme weather events.
- The PM Surya Ghar Yojana received a substantial increase to ₹22,000 crore, accelerating rooftop solar adoption in urban households, while viability gap funding for battery energy storage systems rose nine-fold to ₹1,000 crore.[7] Together, these measures signal recognition of intermittency challenges but require stronger integration to ensure that distributed solar meaningfully enhances urban energy resilience rather than remaining a fragmented intervention.
- Customs duty exemptions for lithium-ion battery components and solar glass inputs support domestic clean energy manufacturing. However, the unchanged allocation for Pradhan Mantri Kisan Urja Suraksha Evam Utthaan Mahabhiyaan (PM-KUSUM) limits integration between urban, peri-urban, and agricultural energy systems, reducing opportunities to build regional energy resilience around cities.[8]
Water Security: Retreat in Core Urban Resilience Financing
- Allocations for Water Supply and Sanitation declined by 15.1 percent to ₹2,232.75 crore in the Union Budget 2026–27, even as climate change amplifies water scarcity, flooding, and infrastructure stress in Indian cities.[9] This reduction weakens the capacity of urban local bodies to invest in resilience-oriented water systems.
- The Atal Mission for Rejuvenation and Urban Transformation(AMRUT) 2.0 saw a 20-percent cut, with funding falling from ₹10,000 crore to ₹8,000 crore.[10] Given that the mission underpins urban water supply, sewerage, and water body rejuvenation, the reduction limits the ability of cities to address non-revenue water, wastewater reuse, and climate-proofing of infrastructure—key determinants of long-term urban water security.
- Targeted investments for Delhi, including ₹1,368.88 crore for pipeline upgrades and ₹380 crore for the Chandrawal Water Treatment Plant, strengthen supply reliability in the capital but underscore an uneven approach where climate-resilient water investments remain reactive and city-specific rather than part of a systemic urban strategy.[11]
- The National Ganga Plan’s allocation increased to ₹3,100 crore, focusing on sewage treatment and wastewater infrastructure.[12] While this strengthens river health, stronger integration with urban reuse, flood mitigation, and basin-level planning would better support downstream cities facing compound climate risks.
Mobility: Infrastructure Expansion Without a Clear Electric Transition Path
- India’s automotive and mobility sector remains economically significant, yet the Union Budget continues to prioritise infrastructure-led connectivity over climate-aligned urban mobility transitions. This approach risks locking cities into high-emission, congestion-prone pathways at a time when climate and air quality pressures demand rapid modal shifts (Figure 3).
Figure 3: GHG Emissions of 55-tonne Tractor-Trailers Produced in 2023 and 2030
Source: The International Council for Clean Transportation[13]
- Capital expenditure for infrastructure rose to ₹2 lakh crore, reinforcing investments in roads, highways, and logistics corridors.[14] While essential for growth, this tilt limits fiscal space for low-carbon urban transport systems that directly reduce emissions and exposure to heat and pollution.
- The sharp reduction in allocations for the PM E-DRIVE scheme from ₹4,000 crore to ₹1,500 crore and similar declines for PM-eBus Sewa slow the deployment of electric buses in cities, weakening one of the most cost-effective levers for urban decarbonisation and clean air.[15]
- Increased allocations for metro rail, alongside announcements of high-speed rail corridors and 4,000 electric buses for Purvodaya states,[a] strengthen mass transit and cleaner public transport. However, without complementary investments in last-mile connectivity and climate-sensitive street design, their full urban resilience potential remains under-realised.
Waste and Sanitation: Maintenance Focus at the Cost of Climate Gains
- The allocation for Swachh Bharat Mission–Urban was reduced by 50 percent to ₹2,500 crore, signalling a transition towards sustaining existing infrastructure and managing legacy waste.[16] However, climate risks linked to waste such as flooding from clogged drains, methane emissions, and disease outbreaks continue to intensify in cities.
- Despite an increase in the overall allocation for the Ministry of Housing and Urban Affairs, capital outlay on Urban Development declined by 31.4 percent, constraining investments in waste processing, sewerage, and faecal sludge infrastructure that are critical for urban climate resilience and public health (Figure 4).[17]
Figure 4: Wastewater Generation and Treatment Capacity Gap at City Level in India (2023)
Source: UJA Global Advisory[18]
Climate-Resilient Infrastructure and Housing: Early Innovation, Limited Scale
- The allocation for PMAY–Urban declined by nearly 6 percent, raising concerns about the pace at which climate-resilient housing can be delivered for vulnerable urban populations increasingly exposed to heatwaves, flooding, and extreme rainfall.
- The introduction of City Economic Regions, with ₹5,000 crore per region over five years through a challenge-mode approach, marks a notable shift towards place-based urban growth.[19] By linking funding to climate and infrastructure benchmarks, the framework has the potential to embed resilience within regional urban planning if implemented rigorously.
- Encouraging large cities to issue high-value municipal green bonds introduces an important pathway for mobilising climate finance, though the benefits may remain concentrated in fiscally stronger cities without parallel capacity-building support.
- Investments in green logistics, inland waterways, coastal shipping, and a ₹20,000-crore Carbon Capture Utilization and Storage (CCUS) outlay signal long-term decarbonisation intent.[20] However, their climate benefits for cities will depend on tighter integration with urban land use planning, industrial zoning, and air quality management.
Health: Infrastructure Expansion Without Climate Mainstreaming
- The increase in health and family welfare allocation to ₹1,06,530.42 crore aligns with the Viksit Bharat 2047 vision, yet urban health systems remain unevenly prepared for climate-induced stresses such as heat-related illness, air pollution exposure, and vector-borne diseases (Figure 5).[21]
Figure 5: Health Facilities Assessed for Preparedness to Manage and Prevent Heat-Related Illnesses, by State (April-July 2024)
Source: National Programme on Climate Change and Human Health.[22]
Note: The colours represent percentages.
- The sharp rise in Pradhan Mantri Ayushman Bharat Health Infrastructure Mission (PM-ABHIM) allocations strengthens critical care and laboratory infrastructure in urban centres, improving preparedness for climate-linked health shocks, though stronger emphasis on surveillance and prevention would enhance resilience.
- Enhanced funding for Pradhan Mantri Jan Arogya Yojana (PM-JAY), the establishment of regional medical hubs, upgrades to mental health institutions, and the Biopharma SHAKTI initiative bolster healthcare capacity. Their long-term impact on urban resilience will depend on how effectively these investments are aligned with climate risk mapping, environmental health data, and city-level public health planning.
The Road Ahead: Building Climate-Resilient Cities for Viksit Bharat 2047
- Move from climate spending to climate-proof development.
India’s urban future cannot be secured through fragmented climate schemes layered onto conventional development models. The road ahead requires reorienting core urban investments, power, transport, housing, water, sanitation, and health, towards climate resilience by design. Every rupee spent on urban infrastructure must be stress-tested against heat, floods, water scarcity, and pollution. This shift, from climate action as a sector to climate resilience as a development principle, will determine whether India’s cities become productive growth engines or remain sites of recurring economic disruption.
- Prioritise reliability, not just capacity, in urban systems.
The next phase of urban development must focus less on asset creation and more on service reliability under climate stress. Renewable energy capacity without grid resilience, water supply without leakage reduction and reuse, or metro rail expansion without last-mile connectivity will deliver diminishing returns in a warming climate. Urban policy must pivot towards ensuring 24×7 power, climate-safe mobility, secure water, and functional sanitation—outcomes that directly shape economic competitiveness and quality of life in cities.
- Embed climate risk into urban planning and fiscal frameworks. Cities require institutional mechanisms to internalise climate risk in planning, budgeting, and investment decisions. This means mainstreaming climate risk assessments into city master plans, infrastructure approvals, and municipal finance. Instruments such as City Economic Regions and municipal green bonds offer an opportunity to link growth with resilience, but only if climate benchmarks are clearly defined, measurable, and enforced. Without this, urban growth will continue to externalise climate risks onto public health systems, municipal finances, and vulnerable populations.
- Strengthen urban local capacity and accountability. Climate-resilient cities cannot be built solely through central schemes. Urban local bodies must be equipped with the technical, financial, and administrative capacity to plan and implement climate-responsive projects. This includes strengthening city-level data systems, enabling professional cadres for climate and infrastructure planning, and aligning intergovernmental transfers with performance on resilience outcomes. Empowered cities are essential to translating national climate ambition into local action.
- Integrate health, air quality, and climate adaptation in cities. As climate risks increasingly manifest through heat stress, air pollution, and disease outbreaks, urban health systems must become a core pillar of climate resilience. Investments in hospitals and medical infrastructure must be complemented by preventive approaches, clean air, heat action plans, resilient water and sanitation systems, that reduce the health burden at source. A healthy urban population is not only a social objective but a prerequisite for sustained economic growth.
- Align urban transitions with equity and inclusion. Climate impacts in cities are unevenly distributed, with the urban poor disproportionately exposed to heat, flooding, and inadequate services. The road to Viksit Bharat 2047 must ensure that climate-resilient housing, clean mobility, and reliable services reach informal settlements and vulnerable communities. Failing to integrate equity into urban climate strategies risks deepening social fractures and undermining the legitimacy of the development transition.
- Treat cities as strategic assets in India’s climate leadership. India’s global climate leadership will increasingly be judged by the resilience of its cities. Well-functioning, climate-resilient urban systems can demonstrate how development and decarbonisation can advance together in a lower-middle-income context. By aligning urban investments with climate resilience, India has the opportunity to shape a distinctly Global South model of sustainable urbanisation, one that supports growth, protects livelihoods, and withstands the shocks of a changing climate.
- Ultimately, Viksit Bharat 2047 will be built or broken in India’s cities. The Union Budget must therefore evolve from allocating funds for urban sectors to enabling resilient urban systems. The choices made today will lock cities into trajectories that last decades. Embedding climate resilience into urban development is no longer optional; it is the defining condition for India’s long-term prosperity.
Aparna Roy is Fellow and Lead, Climate Change and Energy, Centre for New Economic Diplomacy (CNED), ORF.
Sasha Ranjan is Research Intern, Climate Change and Energy, CNED, ORF.
Radhey Wadhwa is Research Assistant, Climate Change and Energy, CNED, ORF.
All views expressed in this publication are solely those of the authors, and do not represent the Observer Research Foundation, either in its entirety or its officials and personnel.
Endnotes
[a] “Purvodaya” refers to the Union government’s strategic focus on accelerating development in eastern India—primarily Bihar, Jharkhand, Odisha, West Bengal, and Andhra Pradesh.
[1] Energy and Clean Air (ECA), Tracing the Hazy Air 2025: Progress Report on the National Clean Air Programme (NCAP) (New Delhi: Energy and Clean Air, 2025), https://energyandcleanair.org/publication/tracing-the-hazy-air-2025-progress-report-on-national-clean-air-programme-ncap/
[2] Ministry of Finance, Expenditure Budget, Statement 28 (Union Budget 2026–27) (New Delhi: Government of India, 2026), https://www.indiabudget.gov.in/doc/eb/sbe28.pdf.
[3] Ministry of Finance, Expenditure Budget, Statement 28.
[4] Press Information Bureau, Government of India, December 29 2025, ⟨https://www.pib.gov.in/PressReleasePage.aspx?PRID=2209478®=3&lang=1.
[5] Ministry of Finance, Economic Survey 2025–26, chap. 10 (New Delhi: Government of India, 2026), https://www.indiabudget.gov.in/economicsurvey/doc/eschapter/echap10.pdf.
[6] Shalini Sharma, “MNRE Budget Surge Is a Rooftop Solar Story, Not a Diversified RE Expansion,” PSU Watch, February 3, 2026, https://psuwatch.com/newsupdates/budget-2026-27-mnres-budget-surge-is-a-rooftop-solar-story-not-a-diversified-re-expansion.
[7] Ministry of Finance, Expenditure Budget, Statement 71 (Union Budget 2026–27) (New Delhi: Government of India, 2026), https://www.indiabudget.gov.in/doc/eb/sbe71.pdf
[8] Ministry of Finance, Expenditure Budget, Statement 71.
[9] Ministry of Finance, Expenditure Budget, Statement 63 (Union Budget 2026–27) (New Delhi: Government of India, 2026), https://www.indiabudget.gov.in/doc/eb/sbe63.pdf.
[10] Tikender Singh Panwar, “What Does the Budget Offer Urban India?,” The Hindu, February 2, 2026, https://www.thehindu.com/business/budget/what-does-the-budget-offer-urban-india/article70578005.ece.
[11] Paras Singh, “Centre Allocates ₹1,368 Cr for Delhi’s Water Upgrade in FY27,” Hindustan Times, February 2, 2026, https://www.hindustantimes.com/cities/delhi-news/centre-allocates-1-368-cr-for-delhi-s-water-upgrade-in-fy27-101769971220681.html.
[12] Harikishan Sharma, “Slight Increase in JJM Allocation, Namami Gange Sees Budget Cut,” Indian Express, February 2, 2026, https://indianexpress.com/article/india/slight-increase-in-jjm-allocation-namami-gange-sees-budget-cut-10508263/.
[13] International Council on Clean Transportation (ICCT), Life-Cycle Greenhouse Gas Emissions of Heavy-Duty Vehicles in India (Washington, DC: ICCT, 2024), https://theicct.org/wp-content/uploads/2024/05/ID-86-%E2%80%93-LCA-HDVs-India_final3.pdf
[14] Anish Mondal, “Budget 2026: ₹12.2 Lakh Crore Capex Boost for Infrastructure in FY27,” Indian Express, February 1, 2026, https://indianexpress.com/article/india/budget-2026-rs-12-2-lakh-crore-capex-boost-for-infrastructure-in-fy27-10506633/.
[15] Nitika Francis, Devyanshi Bihani, Sambavi Parthasarathy, and Vignesh Radhakrishnan, “Budget 2026 Allocation for Electric Mobility Schemes: Record Highs, Notable Declines,” The Hindu, February 1, 2026, https://www.thehindu.com/data/budget-2026-allocation-for-electric-mobility-schemes-record-notable-declines/article70577943.ece.
[16] Ministry of Finance, Expenditure Budget, Statement 60 (Union Budget 2026–27) (New Delhi: Government of India), https://www.indiabudget.gov.in/doc/eb/sbe60.pdf.
[17] Ministry of Finance, Expenditure Budget, Statement 60.
[18] “Wastewater Treatment Sector in India,” UJA Infrastructure, https://uja.in/blog/market-reports/wastewater-treatment-sector-in-india/.
[19] “Bengaluru, Varanasi, Surat among 7 City Economic Regions Planned,” Hindustan Times, February 1, 2026, https://www.hindustantimes.com/cities/bengaluru-news/bengaluru-varanasi-surat-among-7-city-economic-regions-planned-rs-5-000-cr-to-be-allocated-101769951199386.html.
[20] Jacob Koshy, “Union Budget 2026–27: Finance Minister Announces ₹20,000-Crore Carbon Capture Utilisation Scheme,” The Hindu, February 1, 2026, https://www.thehindu.com/business/budget/union-budget-2026-27-finance-minister-nirmala-sitharaman-announces-20000-crore-carbon-capture-utilisation-scheme/article70577158.ece.
[21] Ranu Jain, “Union Budget 2026–27: Health Ministry Gets ₹1.06 Lakh Crore Allocation,” DD News, February 1, 2026, https://ddnews.gov.in/en/union-budget-2026-27-health-ministry-gets-%E2%82%B91-06-lakh-crore-allocation/.
[22] National Programme on Climate Change and Human Health (NPCCHH), Report of Heat-Related Activities 2024 (New Delhi: Ministry of Health and Family Welfare, Government of India, 2024), https://ncdc.mohfw.gov.in/wp-content/uploads/2024/12/Report-of-Heat-Related-Activities-2024_NPCCHH.pdf.
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