INFRASTRUCTURE
Rs 1-lakh crore Urban Challenge Fund gets green signal to spur city-based growth
- IBJ Bureau
- Feb 15, 2026
The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved launch of a Rs 1-lakh crore Urban Challenge Fund (UCF). The fund aims to catalyse market-led and reform-driven urban infrastructure development across the country.
The fund, which will be operational from FY26 to FY31, with a possible extension till FY34, marks a significant shift in India’s urban development strategy from grant-based financing to a market-linked, outcome-oriented model.
Under the scheme, Central assistance will cover 25 per cent of project costs, provided that at least 50 per cent of the financing is mobilised from market sources, such as municipal bonds, bank loans and public-private partnerships (PPPs). The remaining share will be contributed by States, Union Territories and urban local bodies (ULBs). The initiative is expected to leverage a total investment of Rs 4 lakh crore in the urban sector over the next five years.
The fund is designed to promote resilient, inclusive and climate-responsive cities, while positioning urban centres as engines of economic growth. Projects will be selected through a transparent, competitive challenge mode, with funding linked to clearly-defined reforms, milestones and outcomes.
A strong emphasis will be placed on governance reforms, digital transformation, financial strengthening of ULBs, operational efficiency and urban planning improvements, including transit-oriented development and green infrastructure.
Private sector participation will be encouraged through structured risk-sharing frameworks and service delivery benchmarking.
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