Cabinet Greenlights Massive Urban Challenge Fund and Startup Fund 2.0
In a significant move to reshape India's urban landscape and bolster its startup ecosystem, the Union Cabinet has approved two major financial initiatives. The government has given the nod to launch the Urban Challenge Fund (UCF) with a substantial central assistance of Rs 1 lakh crore spread over the next five years. Simultaneously, it has cleared the establishment of Startup India Fund of Funds 2.0, which will have a corpus of Rs 10,000 crore aimed at mobilizing venture capital for the country's burgeoning startup sector.
Urban Challenge Fund: A Paradigm Shift in Urban Development
Announcing these pivotal decisions, Information and Broadcasting Minister Ashwini Vaishnav emphasized that the Urban Challenge Fund is designed to address the pressing challenges of rapid urbanization. The fund will focus on the creative redevelopment of cities, positioning them as dynamic growth hubs while strengthening critical water and sanitation systems. This initiative, which was originally announced in the 2025-26 Union Budget, aims to drive transformative, market-linked urban infrastructure creation across the nation.
The funding mechanism under UCF represents a fundamental shift in approach. Central assistance will cover 25% of a project's total cost, with the condition that at least 50% of the funding is mobilized from the market. This structure is expected to catalyze a massive total investment of approximately Rs 4 lakh crore in the urban sector over the next five years. The government stated that this move marks a paradigm shift from traditional grant-based financing to a more sustainable, market-linked, reform-driven, and outcome-oriented model for infrastructure development.
Eligibility and Coverage for Urban Development
The Urban Challenge Fund will be accessible to a wide range of urban centers. All cities with a population of 10 lakh or more, along with all state capitals and major industrial cities boasting populations exceeding one lakh, will be eligible to avail the fund. Additionally, to ensure inclusive development, all municipal areas in hilly regions and the Northeastern states, as well as smaller towns with populations below 1 lakh, will receive support under a complementary Credit Repayment Guarantee Scheme. For this scheme, the Cabinet has approved an allocation of Rs 5,000 crore.
The UCF strategy leverages market financing, encourages private sector participation, and promotes citizen-centric reforms to deliver high-quality urban infrastructure. This comprehensive framework is intended to not only tackle day-to-day urban challenges but also to steer creative redevelopment, transforming cities into vibrant growth hubs that can sustain economic progress and improve quality of life for residents.
Startup India Fund 2.0: Boosting Venture Capital Ecosystem
Alongside the urban development push, the Cabinet's approval of Startup India Fund of Funds 2.0 underscores the government's commitment to nurturing innovation and entrepreneurship. With a corpus of Rs 10,000 crore, this fund is specifically designed to mobilize venture capital for the startup ecosystem in India. It builds on the success of previous initiatives to provide crucial financial support to emerging businesses, fostering a conducive environment for innovation, job creation, and economic diversification.
These dual approvals reflect a strategic vision to simultaneously enhance urban infrastructure and stimulate entrepreneurial growth, positioning India for sustained development in the coming years.
