In a landmark decision, the Union Cabinet chaired by Prime Minister Narendra Modi has greenlit the Urban Challenge Fund (UCF), unlocking ₹1 lakh crore in central assistance to revolutionize India’s urban landscape. This ambitious initiative marks a pivotal shift from traditional grant-based funding to a market-driven, reform-oriented model that prioritizes high-impact infrastructure.
Over the next five years, the fund will catalyze a whopping ₹4 lakh crore in total investments across urban areas. Cities and urban local bodies must raise at least 50% of project costs from market sources like municipal bonds, bank loans, and public-private partnerships (PPPs). The central share covers 25% of the project cost, ensuring fiscal discipline and private sector involvement.
Launching from FY 2025-26 through FY 2030-31, with potential extension to FY 2033-34, the UCF targets building resilient, inclusive, productive, and climate-resilient cities. These urban hubs are poised to drive India’s next phase of economic growth through superior infrastructure.
Project selection will follow a transparent, competitive challenge mechanism, emphasizing reforms in urban governance, financial systems, operational efficiency, and planning. A dedicated ₹5,000 crore pool will enhance creditworthiness for Tier-II and Tier-III cities, including 4,223 urban local bodies, especially first-time market borrowers.
Smaller urban bodies in northeastern and hill states, and those with populations under 1 lakh, get a special boost via a ₹5,000 crore debt repayment guarantee scheme. It offers central guarantees up to ₹7 crore or 70% of the loan amount (whichever is lower) for initial borrowings, scaling to 50% upon successful repayment. This enables projects worth at least ₹20 crore initially and up to ₹28 crore subsequently.
Focus areas span urban redevelopment, economic corridors, transit-oriented development, heritage revival, water supply upgrades, sewage systems, and solid waste management with legacy waste remediation. Reforms are comprehensive: governance digitization, market access enhancements, operational efficiencies, spatial planning with green infrastructure, and KPI-linked monitoring via a single digital portal.
Private participation is incentivized through structured risk-sharing and standardized service norms. Projects will be evaluated on transformative potential, revenue generation, private investment attraction, job creation, safety, inclusivity, equity, and sanitation improvements. This fund isn’t just money—it’s a blueprint for sustainable urban India.