Cabinet Approves ₹1 Lakh Crore Urban Challenge Fund to Transform India’s Cities

New Delhi | February 14, 2026: The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved the launch of the Urban Challenge Fund (UCF) with a Central Assistance (CA) of ₹1 lakh crore to drive market-led urban transformation across India.

The Fund marks a paradigm shift in India’s urban development strategy — moving from traditional grant-based financing to a market-linked, reform-driven and outcome-oriented infrastructure model.

The scheme will be implemented by the Ministry of Housing and Urban Affairs from FY 2025–26 to FY 2030–31, extendable up to FY 2033–34.

₹4 Lakh Crore Urban Investment Pipeline

Under UCF:

• 25% of project cost will be provided as Central Assistance

• Minimum 50% funding must be mobilised from market sources (municipal bonds, loans, PPPs)

• Remaining funding can come from States/UTs/ULBs

This framework is expected to unlock ₹4 lakh crore investment in the urban sector over five years.

Key Features of the Urban Challenge Fund

1️⃣ Market-Linked Financing Model

Projects must raise at least 50% financing through:

• Municipal bonds

• Bank loans

• Public–Private Partnerships (PPPs)

This positions Urban Local Bodies (ULBs) as a bankable asset class.

2️⃣ ₹5,000 Crore Credit Repayment Guarantee Scheme

To help smaller and first-time borrower cities, the Cabinet approved a ₹5,000 crore guarantee corpus.

Key Provisions:

• Central guarantee up to ₹7 crore or 70% of loan (whichever is lower) for first-time loans

• On successful repayment, guarantee up to ₹7 crore or 50% of loan for subsequent borrowing

• Supports projects worth ₹20 crore (first time) and ₹28 crore (subsequent)

Eligible cities:

• All ULBs in Northeastern & Hilly States

• ULBs with population below 1 lakh in other States/UTs

Three Major Project Verticals

🏙 Cities as Growth Hubs

• Integrated spatial, economic & transit planning

• Greenfield and semi-greenfield developments

• Industrial, tourism, port and defence-linked growth corridors

• Urban mobility & competitiveness infrastructure

🏛 Creative Redevelopment of Cities

• Revitalisation of CBDs & heritage cores

• Brownfield regeneration

• Transit-Oriented Development (TOD)

• Climate resilience & disaster mitigation

• Counter-magnet cities in hilly & northeastern regions

💧 Water & Sanitation

• Water supply and sewerage upgrades

• Stormwater systems

• Solid waste management & legacy waste remediation

• Rurban infrastructure & water grids

• Swachhata-focused reforms

Challenge-Based Selection Mechanism

Projects will be selected through a transparent, competitive challenge mode, based on:

• Transformative economic impact

• Sustainability

• Reform orientation

• Defined KPIs

• Third-party verification

Fund release will be linked to reform milestones and measurable outcomes. Monitoring will be conducted through a dedicated digital portal.

Reform-Linked Funding Architecture

Urban Challenge Fund funding is anchored to reforms in:

• Urban governance & digitisation

• Municipal finance & creditworthiness

• Operational efficiency

• Urban planning & spatial integration

• Climate resilience

Continuation of reforms will be mandatory for future fund releases.

Coverage

Eligible beneficiaries include:

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

• All State & UT capitals

• Major industrial cities with population above 1 lakh

• Smaller ULBs under the Credit Guarantee Scheme

In principle, all cities across India are covered under UCF.

Expected Outcomes

The Urban Challenge Fund aims to:

• Catalyse large-scale private investment

• Improve service equity and safety

• Enhance climate resilience

• Increase revenue mobilisation

• Strengthen urban governance

• Generate employment

• Build future-ready, competitive cities

The initiative is positioned as a foundational reform for India’s next phase of economic growth, leveraging urbanisation as a key d