Over a year after the Union Budget 2025-26 announced the setting up of an Urban Challenge Fund (UCF), the Cabinet on Saturday approved its launch, with a total central assistance of Rs 1 lakh crore, Union ⁠Information Minister ‌Ashwini ​Vaishnaw said in a briefing.

According to a statement released by the government, the initiative will lead to a total investment of Rs 4 lakh crore towards projects in the urban sector in the next five years.

The move comes along with Centre’s approval of projects worth about ​1.6 ​trillion ⁠rupees ($18 billion) for infrastructure, ‌urban development ⁠and ⁠startups on Saturday.

In her 2025 Budget speech, Union Finance Minister Nirmala Sitharaman had announced the establishment of an Urban Challenge Fund of Rs 1 lakh crore to carry out projects for “cities as growth hubs, creative redevelopment of cities and water and sanitation”.

An allocation of Rs 10,000 crore had been proposed for 2025-2026, however, the rules for the challenge were pending approval.

In the Budget 2026-2027, Rs 10,000 crore was allocated to the UCF again.

The UCF will leverage market financing, participation of the private sector and citizen-centric reforms to enable the development of high-quality urban infrastructure, the statement read.

It stated that the fund aims to build resilient, productive, inclusive and climate-responsive cities, positioning them as key drivers of the country’s next phase of economic growth.

It marks a paradigm shift in India’s urban development approach from that of grant-based financing to a market-linked, reform-driven and outcome-oriented infrastructure creation, it highlighted.

It will be operational from FY 2025-26 to FY 2030-31, with an extendable implementation period up to FY 2033-34, news agency PTI noted.

All cities with a population over 10 lakh, all capital cities, major industrial cities with a population of more than 1 lakh will be covered under the Urban Challenge Fund.

Besides these targets, the Centre will pay significant focus on Tier-II and Tier-III cities, along with states in North Eastern and hilly parts of India.

The projects under the UCF spans across three main verticals, as stated by FM Sitharaman earlier. They are as follows:

📌 Cities as growth hubs:

📌 Creative redevelopment of cities:

📌 Water and sanitation:

Under the scheme, central assistance will cover 25 per cent of a project’s cost, given that at least 50 per cent of the funding is mobilised from the market.

The state/UT/urban local bodies/external parties will contribute another 25% of the cost, according to the release.