One Lakh Crore Urban Challenge Fund Approved by Union Cabinet

Context

 Union Cabinet has approved the launch of Urban Challenge Fund which is a new Centrally Sponsored Scheme under Ministry of Housing and Urban Affairs with Rupees One Lakh Crores (Rs 1,00,000 crores) of Central Assistance. The fund will focus on transformative and bankable urban projects leading to a total investment of Rs 4 lakh crores in Urban Sector in the next five years. 

Salient Features of Urban Challenge Fund

• • Financing Mode under Urban Challenge Fund: 25% of funding for projects will be given from the Urban Challenge Fund as Central Assistance, provided that more at least 50% of the project cost is raised from market sources and the remaining (25% or less) can be funded by State/UTs or Urban Local Bodies (ULBs).
  • Eligible Market Sources: Bank loans, municipal bonds, PPP. Private players can also offer financial or managerial capabilities to build and manage the city infrastructure.
  • Credit Repayment Guarantee Scheme of Rs 5,000 crores: To facilitate first time access to market finance for cities/ULBs in North-Eastern & Hilly States/UTs to provide central guarantee of up to Rs 7 crores or 70% of the loan amount (whichever is lower) for first time loans.

• Duration of Urban Challenge Fund: Operational from FY 2025–26 to FY 2030–31, with an extendable implementation period up to FY 2033–34

• • Selection of Projects to be Financed through Urban Challenge Fund: Through a transparent and competitive challenge mode, ensuring support to high-impact and reform-oriented proposals.
  • Reforms under Urban Challenge Fund:
    • Market & Municipal Finance Reforms: Creditworthiness, asset registers, revenue enhancement, market leverage.
    • Governance & digital Reforms: Staffing, digitised services & project monitoring.
    • Operational & Capacity Reforms: Readiness, Quality, O&M, Sustainability.
    • Project-specific Reforms: KPIs, safety-by-design, monitoring & independent verification.
  • Urban Development Projects supported under Urban Challenge Fund:

• Creative Development of Cities: Aims to revitalise congested central business districts (CBDs) and historic cores, upgrading legacy infrastructure, public spaces, mobility, flood resilience, and enabling land value capture to make redevelopment viable.

• Cities as Growth Hubs: Strengthening of city regions as economic engines by connecting economic nodes and improving competitiveness infrastructure.

• Water & Sanitation: Tackling of gaps and vulnerable areas, moving cities towards service saturation with sustainability and reuse/circularity.

• • Eligibility of Cities to receive financing under Urban Challenge Fund: 

• All cities with a population of 10 lakh or more (2025 estimates).

• All State and Union Territory capitals not covered above.

• Major industrial cities with a population of 1 lakh or more.

• All ULBs in hilly States, North-Eastern States, and smaller ULBs with population below 1 lakh will be eligible for support under the Credit Repayment Guarantee Scheme In principle, all cities will be covered under UCF. 

• Minimum 50% of project financing has to be mobilized from market sources, including municipal bonds, bank loans and PPP. Remaining share of project cost to be contributed by States, UTs, Urban Local Bodies and other sources.
• Projects to be selected through a transparent and competitive challenge mode
• Small Urban Local Bodies with a population below one lakh population, along with all the cities of Hilly & North-eastern States/UTs will be supported through the credit repayment guarantee scheme.

Significance of Urban Challenge Fund

• Paradigm shift in India’s urban financing from grand based financing to market linked, reform-driven and outcome oriented infrastructure creation.
• Make urban development not vulnerable to availability of public finances. Urban development cannot be funded by public finance alone.
• Creation of market for bankable projects.

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