Urban Challenge Fund
What’s in the news?
- The Union Cabinet has approved the launch of a ₹1 lakh crore Urban Challenge Fund (UCF) aimed at catalysing market-led and reform-driven urban infrastructure development across the country.
- The Fund, which will be operational from FY 2025–26 to FY 2030–31 (with a possible extension till FY 2033-34), marks a significant shift in India’s urban development strategy – from grant-based financing to a market-linked, outcome-oriented model.
- UCF will be implemented as a Centrally Sponsored Scheme of the Ministry of Housing and Urban Affairs (MoHUA).
Financial Assistance
- Under the scheme, Central Assistance (CA) will cover 25 per cent of project costs, provided that at least 50 per cent of the financing is mobilised from market sources such as municipal bonds, bank loans and Public–Private Partnerships (PPPs).
- The remaining share will be contributed by states, Union Territories and Urban Local Bodies (ULBs).
- The initiative is expected to leverage a total investment of ₹4 lakh crore in the urban sector over the next five years.
- Projects will be selected through a transparent, competitive challenge mode, with funding linked to clearly defined reforms, milestones and outcomes.
- To enhance the creditworthiness of cities – particularly Tier-II and Tier-III urban centres – the Cabinet has also approved a ₹5,000 crore Credit Repayment Guarantee Scheme.
- The scheme will provide a Central guarantee of up to ₹7 crore or 70 per cent of the loan amount (whichever is lower) for first-time loans taken by smaller ULBs, including those in northeastern and hilly states and cities with populations below one lakh.
- For subsequent loans, a guarantee of up to ₹7 crore or 50 per cent of the loan amount will be provided upon successful repayment of the first loan.
Project Verticals
- The Fund will support projects under three major verticals:
- Cities as Growth Hubs: Integrated spatial and economic planning, greenfield and semi-greenfield developments, transit-linked growth, urban mobility and critical infrastructure.
- Creative Redevelopment of Cities: Renewal of central business districts, heritage areas, brownfield regeneration, climate resilience initiatives and measures to decongest cities, especially in northeastern and hilly states.
- Water and Sanitation: Upgradation of water supply, sewerage and stormwater systems, water grids, integrated solid waste management and legacy waste remediation.
Coverage
- The Urban Challenge Fund will cover:
- All cities with a population of 10 lakh or more (2025 estimates);
- All State and Union Territory capitals not covered above; and
- Major industrial cities with a population of 1 lakh or more.
- Smaller ULBs and all cities in northeastern and hilly states will be eligible under the credit guarantee component.