The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved the launch of the Urban Challenge Fund (UCF) with a Central Assistance of ₹1 lakh crore, marking a major shift in India’s urban financing model. According to the official release, the Fund will operate from FY 2025–26 to FY 2030–31 (extendable to FY 2033–34) and aims to mobilize a total investment of ₹4 lakh crore in the urban sector over the next five years.
The UCF introduces a paradigm shift from traditional grant-based funding to a market-linked, reform-driven and outcome-oriented framework. Under the scheme, at least 50% of project financing must be mobilized from market sources such as municipal bonds, bank loans, and Public–Private Partnerships (PPPs), while Central Assistance will cover 25% of project cost.
Projects will be selected through a transparent challenge-based process focusing on transformative impact, sustainability, governance reforms, and measurable outcomes. A dedicated ₹5,000 crore Credit Repayment Guarantee Scheme has also been approved to enhance the creditworthiness of 4,223 cities, particularly Tier-II and Tier-III cities and smaller Urban Local Bodies (ULBs). Smaller cities in Northeastern and hilly states will receive special support to access first-time market financing.
The Fund will support three key verticals: Cities as Growth Hubs, Creative Redevelopment of Cities, and Water & Sanitation, including climate resilience, transit-oriented development, brownfield regeneration, and integrated solid waste management.
By positioning ULBs as a bankable asset class and linking funding to reforms, milestones, and KPIs, the Urban Challenge Fund aims to catalyse private investment, strengthen governance, and build resilient, inclusive and future-ready cities aligned with national development priorities.
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