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Cabinet Approves ₹1 Lakh Crore Urban Challenge Fund

  • 16 Feb 2026

On 13th February 2026, the Union Cabinet approved the launch of a ₹1 lakh crore Urban Challenge Fund (UCF) to drive market-led urban infrastructure development and strengthen city governance across India.

Key Points

  • Reform-Led Urban Growth: The government has approved the Urban Challenge Fund to catalyse large-scale urban infrastructure development through a market-linked and reform-driven financing model.
  • Operational Timeline and Investment Push: The fund will operate from FY 2025–26 to FY 2030–31, with a possible extension till FY 2033–34, and is expected to leverage nearly ₹4 lakh crore in total urban sector investment.
  • Market-Based Financing Model: Central Assistance will cover 25% of project costs, provided at least 50% of financing is mobilised through municipal bonds, bank loans, and Public-Private Partnerships, with the remaining contribution from states and urban bodies.
  • Reform-Linked Competitive Selection: Projects will be selected through a challenge mode with funding tied to governance reforms, milestone-based outcomes, and measurable performance indicators.
  • •Focus on Governance and Digital Transformation: The initiative emphasises strengthening Urban Local Bodies through financial reforms, digital governance, improved planning, and enhanced operational efficiency.
  • Coverage and Eligibility: The programme will cover cities with populations above 10 lakh, all state and Union Territory capitals, major industrial cities, and smaller urban bodies through the credit guarantee component.
  • Boost For Tier-II And Tier-III Cities: The scheme will help smaller urban centres, including those in northeastern and hilly regions, gain market access and finance infrastructure projects starting from ₹20 crore in size.
  • Three Key Project Verticals: The fund will support development under Cities as Growth Hubs, Creative Redevelopment of Cities, and Water and Sanitation, covering urban mobility, green infrastructure, heritage renewal, waste management, and water systems.