Cabinet approves Rs 1 lakh crore for Urban Challenge Fund: Know what it is
Kartavya Desk Staff
Over a year after the Union Budget 2025-26 announced the setting up of an Urban Challenge Fund (UCF), the Cabinet on Saturday approved its launch, with a total central assistance of Rs 1 lakh crore, Union Information Minister Ashwini Vaishnaw said in a briefing. According to a statement released by the government, the initiative will lead to a total investment of Rs 4 lakh crore towards projects in the urban sector in the next five years. The move comes along with Centre’s approval of projects worth about 1.6 trillion rupees ($18 billion) for infrastructure, urban development and startups on Saturday. ## When was the UCF first announced? In her 2025 Budget speech, Union Finance Minister Nirmala Sitharaman had announced the establishment of an Urban Challenge Fund of Rs 1 lakh crore to carry out projects for “cities as growth hubs, creative redevelopment of cities and water and sanitation”. An allocation of Rs 10,000 crore had been proposed for 2025-2026, however, the rules for the challenge were pending approval. In the Budget 2026-2027, Rs 10,000 crore was allocated to the UCF again. ## What does the UCF aim to do? The UCF will leverage market financing, participation of the private sector and citizen-centric reforms to enable the development of high-quality urban infrastructure, the statement read. It stated that the fund aims to build resilient, productive, inclusive and climate-responsive cities, positioning them as key drivers of the country’s next phase of economic growth. It marks a paradigm shift in India’s urban development approach from that of grant-based financing to a market-linked, reform-driven and outcome-oriented infrastructure creation, it highlighted. It will be operational from FY 2025-26 to FY 2030-31, with an extendable implementation period up to FY 2033-34, news agency PTI noted. ## Which cities will be covered under the UCF? All cities with a population over 10 lakh, all capital cities, major industrial cities with a population of more than 1 lakh will be covered under the Urban Challenge Fund. Besides these targets, the Centre will pay significant focus on Tier-II and Tier-III cities, along with states in North Eastern and hilly parts of India. ## What will the projects under UCF entail? The projects under the UCF spans across three main verticals, as stated by FM Sitharaman earlier. They are as follows: 📌 Cities as growth hubs: • It entails greenfield/semi-greenfield and Trunk infrastructure development, along with developments on transit or economic corridors. • Counter magnets will also be installed along transit corridors, ensuring enhanced urban mobility. 📌 Creative redevelopment of cities: • It would entail legacy infrastructure retrofitting and improvement, pedestrianization as well as mobility. • It also includes rejuvenation of Central Business Districts or heritage cores. • Regeneration of brownfield areas as well as removal of negative externalities are also planned. 📌 Water and sanitation: • Under this vertical, the government plans to upgrade water sewerage and storm water systems, besides installing water grids in various cities. • It would be focused on ‘Swachhata‘ and solid waste management across cities, including legacy waste remediation, and integrated water processing. ## How will the projects be funded? Under the scheme, central assistance will cover 25 per cent of a project’s cost, given that at least 50 per cent of the funding is mobilised from the market. The state/UT/urban local bodies/external parties will contribute another 25% of the cost, according to the release.