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The Union Cabinet has approved a INR 1 lakh crore Urban Challenge Fund to support urban infrastructure projects through a reform-linked and market-based financing approach. The fund will provide up to 25% central support for projects that raise at least 50% of their cost from market sources, with the aim of unlocking nearly INR 4 lakh crore in overall investment over five years. A separate INR 5,000 crore credit guarantee has also been cleared to help smaller cities access loans and bonds for development works.
The Union Cabinet has approved the creation of a INR 1 lakh crore Urban Challenge Fund, marking a significant shift in the way urban infrastructure projects will be financed in India. The initiative is designed to move away from grant-heavy funding and instead encourage cities to raise capital through market instruments such as municipal bonds, bank loans and public-private partnerships. Central support under the fund will be limited to 25% of the project cost, provided that at least 50% of the financing is mobilised from non-budgetary sources. Advertisement
The government expects this structure to help unlock nearly INR 4 lakh crore in total investment in urban infrastructure over a five-year period. Projects will be selected through a competitive challenge-based process, with funding linked to reforms, clear milestones and measurable outcomes. Urban local bodies will be required to demonstrate improvements in governance, financial management, service delivery and planning to qualify for and retain funding.
Alongside the Urban Challenge Fund, the Cabinet has also approved a INR 5,000 crore Credit Repayment Guarantee Scheme. This facility is aimed primarily at smaller cities and towns, including those in hilly and northeastern regions, which often face difficulty accessing market finance. The guarantee will help these urban local bodies secure loans by reducing lender risk, enabling them to fund essential infrastructure projects.
The fund will support projects across three broad areas. These include developing cities as economic growth hubs through improved mobility, transit-oriented development and industrial clusters; creative redevelopment of existing urban areas such as central business districts and underutilised land; and strengthening water supply, sewerage, stormwater and sanitation infrastructure. Large cities, state and Union Territory capitals, and major industrial towns will be covered directly, while smaller urban centres will benefit mainly through the credit guarantee mechanism.
Implementation and fund release will be closely monitored, with continued support dependent on sustained reform efforts and project performance. The government believes this approach will improve the creditworthiness of urban local bodies, create a pipeline of bankable projects and promote more disciplined urban development.
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