Union Budget Allocation for Urban Development

News: The total outlay for urban development in FY 2025 stands at ₹96,777 crore, an increase from last year’s ₹82,576.57 crore.

About the Budgetary allocation

• The budget primarily focuses on large-scale infrastructure projects, particularly metro rail expansions, while employment generation and sustainable development receive less attention.
• Key urban infrastructure programs have not received adequate funding, indicating a misalignment between policy goals and actual budgetary support.

Decline in Urban Local Bodies (ULBs) Funding

• Urban development funds are distributed through three key channels:
  1. Direct transfers to Urban Local Bodies (ULBs)
  2. Centrally Sponsored Schemes (CSS)
  3. Central Sector Schemes
• Direct transfers to ULBs have declined from ₹26,653 crore last year to ₹26,158 crore this year.
• The abolition of octroi and the implementation of GST led to a 21% drop in ULB revenue, yet compensation through central devolution has not increased.
• This funding shortfall will force cities to generate their own revenue, potentially increasing local taxes and burdening citizens.

Budget Reductions for Key Urban Schemes

• Centrally Sponsored Schemes (CSS) include key urban programs such as:
  • PMAY (Urban) – Budget reduced by 30%.
  • AMRUT & Smart Cities Mission – Funding reduced; Smart Cities Mission has almost no funds left.
  • Swachh Bharat Mission (Urban) – Allocation remains at ₹5,000 crore, but only ₹2,159 crore (56%) was spent as per RE.

Increased Allocation for Metro and Mass Transit Systems

• Metro rail and rapid transit projects have seen significant budget increases, unlike other urban programs.
• FY 2024-25 Budget for metro projects: ₹21,335.98 crore
• Revised Estimate (RE): ₹24,691.47 crore
• FY 2025-26 Budget proposal: ₹31,239.28 crore (a 46% increase from the previous year).
• This prioritization of metro rail projects over holistic urban mobility raises concerns about inclusive urban development.

New Urban Challenge Fund

• The Urban Challenge Fund of ₹10,000 crore has been introduced to boost urban redevelopment programs.
• The government aims to mobilize ₹1 lakh crore for urban development, with half of this funding expected from private investments.
• Given the limited private sector participation in initiatives like the Smart Cities Mission, this target may be overly ambitious.