New Delhi: The Union Cabinet on Saturday approved the launch of the Urban Challenge Fund (UCF) with a total central assistance of ₹1 lakh crore. Union Minister Ashwini Vaishnav told the media after the Cabinet meeting that under this scheme, the central government will bear 25 percent of the project cost, provided at least 50 percent of the funds are raised from the market.
According to an official statement, this initiative is expected to generate a total investment of ₹4 lakh crore in urban areas over the next five years. The government has stated that this move marks a major shift in India’s urban development approach. Under this initiative, the emphasis will shift from grant-based financing to building market-driven, reform-based, and results-oriented infrastructure.
It also stated that the UCF will leverage market financing, private sector participation, and citizen-centric reforms to develop high-quality urban infrastructure.
According to the statement, the fund aims to make cities resilient to future challenges, productive, inclusive, and climate-resilient, enabling them to become key drivers of the country’s next phase of economic growth.
This move is in line with the government’s vision announced in Budget 2025-26, which calls for developing cities as hubs of growth, implementing innovative urban redevelopment initiatives, and implementing water and sanitation-related proposals.
The government has set aside a special fund of ₹5,000 crore to support smaller cities and towns in hilly or northeastern states. This will act as a credit guarantee for cities that are borrowing from the market for the first time. The aim is to give these local bodies greater credibility so they can ultimately fund their development. The government stated that this will “facilitate access to market finance for all cities/urban local bodies and smaller urban local bodies in the northeastern and hilly states for the first time.”
