The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved the launch of the Urban Challenge Fund (UCF). This new Centrally sponsored scheme under the Ministry of Housing and Urban Affairs aims to catalyze market-linked and reform-driven urban development projects across the country. With a total Central assistance of ₹1 lakh crore, the fund is designed to foster resilient, inclusive, and climate-responsive cities over the next five years.
The UCF represents a paradigm shift in urban financing, emphasizing private sector participation and market mechanisms to fund infrastructure projects. Under the scheme, Central assistance will cover 25% of the project costs, provided that at least 50% of the funding is raised from the market through instruments like municipal bonds, bank loans, and public-private partnerships (PPPs). This approach is expected to leverage an additional ₹3 lakh crore from external sources, resulting in a total investment of ₹4 lakh crore in urban sectors.
The fund's coverage is broad and inclusive, targeting all cities with a population of 10 lakh or more based on 2025 estimates, as well as all capitals of States and Union Territories that may not meet the population threshold. Additionally, it extends to all cities in the hill States of the North East, ensuring that even smaller urban centers in challenging terrains benefit from the initiative. This wide scope aims to tackle day-to-day urban challenges such as traffic congestion, waste management, water supply, and sustainable housing, which have intensified due to India's growing urban population.
Union Minister Ashwini Vaishnaw, briefing the media on the Cabinet's decision, highlighted that the UCF will promote citizen-centric reforms and high-quality infrastructure delivery. "The Urban Challenge Fund is tailored to address the pressures of rapid urbanization by encouraging innovative financing and private involvement," Vaishnaw stated. The scheme builds on previous urban missions like the Smart Cities Mission and AMRUT, but with a stronger focus on market-driven sustainability.
Experts view this as a timely intervention, given that India's urban population is projected to reach 600 million by 2036. By incentivizing reforms such as improved municipal governance, digital integration, and green building practices, the UCF could set a new benchmark for urban transformation in developing economies. However, successful implementation will depend on the ability of urban local bodies to access market funds and execute projects efficiently
₹1 lakh crore in Central assistance to support urban projects, leveraging market sources for a total investment of ₹4 lakh crore over five years.
Applies to cities with 10 lakh+ population, all State/UT capitals, and North Eastern hill cities, focusing on resilient and climate-responsive infrastructure.
Central aid covers 25% of costs if 50% is raised via bonds, loans, or PPPs, promoting reforms and private sector participation.
