Cabinet Greenlights Urban Challenge Fund with Massive Rs 1 Lakh Crore Central Assistance
The Union Cabinet has given its approval for the launch of the Urban Challenge Fund (UCF), a transformative initiative backed by a total Central Assistance of Rs 1 lakh crore. This ambitious fund is strategically designed to propel market-linked urban infrastructure development across India, with the overarching goal of catalysing investments worth approximately Rs 4 lakh crore over the next five years.
A Paradigm Shift in Urban Development Financing
This fund represents a significant departure from traditional grant-based financing models. According to an official government statement, it embraces a "market-linked, reform-driven and outcome-oriented" approach to infrastructure creation. The scheme is scheduled to be operational from the financial year 2025–26 through 2030–31, with a flexible implementation window that can be extended until FY 2033–34.
Market-Led Financing Model with Reform-Linked Funding
Under the innovative framework of the UCF, Central Assistance will cover 25% of the total project cost. A minimum of 50% of the funding must be mobilised from market sources, including municipal bonds, bank loans, and Public-Private Partnerships (PPPs). The remaining portion can be financed by states, Union Territories, urban local bodies, or other available sources.
The fund is meticulously crafted to leverage private investment, strengthen municipal finance systems, and enhance governance. It aims to support citizen-centric urban reforms while ensuring the delivery of high-quality infrastructure. A PIB statement emphasised that the fund seeks to create "resilient, productive, inclusive and climate-responsive cities," positioning urban centres as pivotal drivers of India's next phase of economic growth.
Rs 5,000 Crore Credit Support to Empower Smaller Cities
A dedicated corpus of Rs 5,000 crore has been established to enhance the creditworthiness of 4,223 cities, with a special focus on Tier-II and Tier-III urban centres. This initiative is particularly crucial for cities accessing market financing for the first time.
Additionally, the Cabinet has approved a Credit Repayment Guarantee Scheme of Rs 5,000 crore. This scheme is tailored to support urban local bodies in Northeastern and hilly states, as well as smaller cities with populations below one lakh.
- For first-time loans, the scheme provides a Central guarantee of up to Rs 7 crore or 70% of the loan amount, whichever is lower.
- For subsequent loans, the guarantee will be up to Rs 7 crore or 50% of the loan amount.
This financial backing is expected to support projects worth at least Rs 20 crore in smaller cities initially, increasing to Rs 28 crore in subsequent phases.
Challenge-Based Project Selection for Maximum Impact
Project selection under the UCF will follow a competitive, challenge-based framework. This process will prioritise transformative impact, sustainability, and a strong reform orientation. Funding will be directly linked to the achievement of specific reform milestones, defined outcomes, and performance benchmarks.
Continued release of funds will be contingent upon sustained reform progress. Monitoring will be conducted through a digital portal managed by the Ministry of Housing and Urban Affairs to ensure transparency and accountability.
Strategic Focus Areas for Urban Transformation
The fund will channel resources into three major verticals to address critical urban needs:
- Cities as Growth Hubs: This vertical focuses on integrated spatial and economic planning, transit-linked development, urban mobility, and infrastructure projects aimed at boosting economic competitiveness.
- Creative Redevelopment of Cities: Initiatives here include the revamp of central business districts, heritage zones, brownfield regeneration, transit-oriented development, and climate-resilient urban upgrades.
- Water and Sanitation: Upgradation of water supply, sewerage, and stormwater systems, integrated solid waste management, legacy waste remediation, and rurban infrastructure development.
Comprehensive Coverage Across Urban Centres
The UCF will have wide-ranging coverage, extending to:
- All cities with populations of 10 lakh or more.
- All state and Union Territory capitals.
- Major industrial cities with populations above one lakh.
Smaller cities, including those in Northeastern and hilly states, will receive support through the credit guarantee component. The government has indicated that "in principle all cities will be covered under UCF," ensuring broad inclusivity.
Reform-Driven Urban Governance for Sustainable Growth
Funding under the UCF will be intrinsically linked to comprehensive reforms across multiple domains, including governance, financial systems, service delivery, and urban planning. Key reform areas encompass digital governance, credit strengthening measures, and transit-oriented development.
Projects will be rigorously evaluated based on their capacity to deliver tangible economic, social, and climate outcomes. These include revenue generation, private investment mobilisation, job creation, improved safety, inclusiveness, and enhanced service delivery.
The government anticipates that the Urban Challenge Fund will serve as a powerful catalyst for large-scale private investment, significantly improve urban governance, and accelerate the development of future-ready cities that are fully aligned with national development priorities.
