New Delhi, Feb 14 (NationPress) In a significant transformation of urban development strategy, the government has given the green light for the Urban Challenge Fund (UCF), backed by a central allocation of Rs 1 lakh crore.

This financial support will amount to 25 percent of the total project costs, provided that at least 50 percent of the required funding is secured from market sources.

This initiative is anticipated to result in a cumulative investment of Rs 4 lakh crore in the urban sector over the next five years, transitioning from conventional grant-based financing to a model that is market-driven, reform-focused, and oriented towards achieving tangible outcomes, as outlined by the Cabinet led by Prime Minister Narendra Modi.

The UCF will be active from FY 2025–26 to FY 2030–31, with the possibility of extending its implementation period until FY 2033–34.

This initiative aligns with the government’s vision articulated in the Budget 2025–26, which includes plans for cities to serve as Growth Hubs, innovative redevelopment, and improvements in water and sanitation, according to a Cabinet statement.

The Fund aims to attract market financing, encourage private sector involvement, and implement citizen-oriented reforms to deliver superior urban infrastructure.

The objective is to develop resilient, productive, inclusive, and climate-responsive urban areas, positioning them as essential contributors to the nation’s forthcoming economic growth.

As per an official announcement, at least 50 percent of the funding for projects must be sourced from the market, which may include municipal bonds, bank loans, and public-private partnerships (PPPs).

The remaining funds can be provided by states, Union Territories (UTs), Urban Local Bodies (ULBs), or other sources. The selection of projects will be conducted through a transparent and competitive challenge mode, ensuring that high-impact and reform-focused proposals receive support.

Additionally, a dedicated Rs 5,000 crore fund will bolster the creditworthiness of 4,223 cities, including Tier 2 and 3 cities, especially for first-time market finance access.

The Fund will be available for all cities with a population of 1 million or more (2025 projections) and major industrial cities with populations of 100,000 or more. Furthermore, all ULBs in hilly regions, northeastern states, and smaller ULBs with populations under 100,000 will qualify for assistance under the Credit Repayment Guarantee Scheme. In general, all cities will be included under the UCF.