New Delhi, February 14 – Marking a significant shift in the approach to urban development, the government on Saturday approved the launch of the Urban Challenge Fund (UCF) with a central assistance of Rs 1 lakh crore.
The central assistance will cover 25 per cent of the project cost, subject to raising a minimum of 50 per cent of the project cost from the market.
This will lead to a total investment of Rs 4 lakh crore in the urban sector over the next five years, marking a shift from grant-based financing to market-linked, reform-driven, and outcome-oriented infrastructure creation, according to the Cabinet chaired by Prime Minister Narendra Modi.
The Fund will be operational from FY 2025–26 to FY 2030–31, with a possible implementation period extended up to FY 2033–34.
The Cabinet stated that this aligns with the government's vision announced in Budget 2025–26 to implement proposals related to cities as Growth Hubs, Creative Redevelopment of Cities, and Water and Sanitation.
The Fund will leverage market finance, private participation, and citizen-centric reforms to deliver high-quality urban infrastructure.
It aims to build resilient, productive, inclusive, and climate-responsive cities, positioning them as key drivers of the country's next phase of economic growth.
According to an official statement, a minimum of 50 per cent of project financing must be sourced from the market, including municipal bonds, bank loans, and public-private partnerships (PPPs).
The remaining share can be contributed by States, Union Territories (UTs), Urban Local Bodies (ULBs), or other sources. Projects will be selected through a transparent and competitive challenge mode, ensuring support for high-impact and reform-oriented proposals.
Furthermore, a dedicated corpus of Rs 5,000 crore will enhance the creditworthiness of 4,223 cities, including Tier 2 and 3 cities, particularly for first-time access to market finance.
The Fund will cover all cities with a population of 10 lakh or more (2025 estimates), as well as major industrial cities with a population of 1 lakh or more. Additionally, all ULBs in hilly States, northeastern States, and 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 UCF.
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