Cabinet approves Rs 1 lakh cr Urban Challenge Fund for urban uplift

In a significant enhancement to urban infrastructure, the Union Cabinet has sanctioned the initiation of the Urban Challenge Fund (UCF) with total central support of Rs 1 lakh crore, as stated by Union Information and Broadcasting Minister Ashwini Vaishnaw on Saturday (February 14).

Under the programme, central funding will account for 25 per cent of a project's expenses, on the condition that a minimum of 50 per cent of the financing is sourced from the market.

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The government announced officially that the initiative will result in investment worth Rs 4 lakh crore in the urban sector in the next five years.

The transition signifies a fundamental change in India's strategy for urban development, shifting from grant-based funding to a market-oriented, reform-focused, and results-driven infrastructure creation, the government statement said.

The UCF will leverage market financing, private sector participation and citizen-centric reforms to deliver high-quality urban infrastructure, it added.

Fund eyes resilient cities

The fund seeks to develop cities that are resilient, productive, inclusive, and responsive to climate change, thereby establishing them as essential catalysts for the country’s next stage of economic growth, it said.

The UCF will be operational from FY 2025-26 to FY 2030-31, with an extendable implementation period up to FY 2033-34. It gives effect to the government's vision announced in Budget 2025-26 to implement proposals relating to cities as growth hubs, creative redevelopment of cities, and water and sanitation.

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According to the government, a minimum of 50 per cent of project financing must be mobilised from market sources, including municipal bonds, bank loans and Public-Private Partnerships (PPPs). The remaining share can be contributed by states, Union Territories, Urban Local Bodies (ULBs) or other sources.

Projects will be selected through a transparent and competitive challenge mode, ensuring support to high-impact and reform-oriented proposals, it said.

To cover cities with 10 lakh or more people

The fund will cover cities with a population of 10 lakh or more (2025 estimates); all state and Union Territory capitals not included in that category, and major industrial cities with a population of 1 lakh or more, the statement said.

Additionally, all ULBs in hilly and north-eastern states, as well as smaller ULBs with a population below 1 lakh, will be eligible for support under the Credit Repayment Guarantee Scheme. In principle, all cities will be covered under the UCF, it said.

"Projects will be evaluated on their ability to deliver transformative outcomes — economic, social and climate, including revenue mobilisation, private investment, job creation, improved safety, inclusiveness, service equity and cleanliness," it said.

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The UCF is expected to catalyse large-scale private investment, strengthen urban governance, and accelerate the creation of future-ready cities aligned with national development priorities, it said.

To facilitate first-time access to market finance for cities/ULBs in northeastern and hill states, and for smaller ULBs (with population less than 1 lakh) in other states/UTs, a Credit Repayment Guarantee Scheme of Rs 5,000 crore has been approved.

(With agency inputs)