Marking a significant change in urban development strategy, the government has sanctioned the Urban Challenge Fund (UCF) with a central assistance of Rs 1 lakh crore. This fund will cover 25% of the project cost, with a requirement to raise at least 50% from the market. The initiative aims to attract a total investment of Rs 4 lakh crore in the urban sector over the next five years, shifting from grant-based to market-linked financing.
The Urban Challenge Fund, approved by the Cabinet chaired by Prime Minister Narendra Modi, will be operational from FY 2025–26 to FY 2030–31, extendable up to FY 2033–34. It aligns with the government’s vision to transform cities into Growth Hubs, focus on Creative City Redevelopment, and enhance Water and Sanitation infrastructure. The fund will emphasize market finance, private participation, and citizen-centric reforms for developing high-quality urban infrastructure.
With a goal to create resilient, productive, inclusive, and climate-responsive cities, the Urban Challenge Fund is envisioned to drive the country’s economic growth. The projects funded under this initiative will require a minimum of 50% financing from market sources like municipal bonds, bank loans, and public–private partnerships (PPPs). The selection process will be transparent and competitive, supporting impactful and reform-driven proposals.
A dedicated corpus of Rs 5,000 crore will be allocated to enhance the creditworthiness of 4,223 cities, including Tier 2 and 3 cities, enabling them to access market finance for the first time. The Urban Challenge Fund will encompass all cities with a population of 10 lakh or more as per 2025 estimates, along with major industrial cities with a population exceeding 1 lakh. Additionally, support under the Credit Repayment Guarantee Scheme will be extended to ULBs in hilly States, northeastern States, and smaller ULBs with populations below 1 lakh. In essence, the UCF will cover all cities.
