New Delhi, Feb 14 Marking a paradigm shift in the urban development approach, 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 minimum 50 per cent of the project cost from market.
This will lead to a total investment of Rs 4 lakh crore in urban sector in the next five years, marking a paradigm 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 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, said the Cabinet in a statement.
The Fund will leverage market finance, private participation and citizen- centric reforms for delivery of high-quality urban infrastructure.
It aims to build resilient, productive, inclusive and climate-responsive cities, positioning those 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 have to be mobilised from market sources, including municipal bonds, bank loans and public–private partnerships (PPPs).
The remaining share may 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 to high-impact and reform-oriented proposals.
Moreover, a dedicated Rs 5,000 crore corpus 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) and major industrial cities with a population of 1 lakh or more. Additionally, all ULBs in hilly States, northeastern States, and smaller ULBs, with 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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