Big growth dreams for the country’s small cities

Not all urban pockets are experiencing equally rapid growth. A common framework can help realise the “small cities as growth hubs” vision

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Prime Minister Narendra Modi, ata Niti Aayog governing council meeting, urged state governments to focus on tier-2 and 3 cities as engines of sustainability and growth.

He spoke of the Urban Challenge Fund (UCF) that will provide seed money. Are the smalland mediumsized cities in India ready to embrace such transformation? How can we spur, institutionalise and sustain growth in our tier-2and 3 cities? Here, ‘we suggest some orientations for policy, toward achieving such a goal.

The UCF, introduced in the FY26 budget, allocates Zl lakh crore over five years, with 210,000 crore set aside for the current fiscal, to fund projects in three priority areas: Cities as growth hubs, creative redevelopment, water and sanitation. The Centre will finance up to 25% of bankable projects, provided atleast 50% of the funding comes from bonds, bank loans, or public-private partnerships (PPPs) via the UCE, with the remaining 25% expected from state governments. This incentivised partial public funding is likely to support many tier-2.and tier-3 cities.

Budget FY24 established the Urban Infrastructure Development Fund (UIDF) with an initial corpus of 10,000 crore for tier-2 and 3 cities to become regional economic hubs. Itcovered 459 tier-2 cities and 580 tier-3 cities, with

city populations ranging between 50,000 and 9,99,999..Sucha policy shift raises two pertinent questions. First, do we have a framework for identifying tier-2 and 3 cities with significant growth potential? Second, dowe havea Suitable operational model to bolster theurban economic growth process for making tier 2 and 3 cities India’s new growth hubs? Tier-wise classification of cities is generally based on population size, which is no indicator of their