New Delhi, February 14, 2026

The Union Cabinet on Friday approved the ₹1 lakh crore Urban Challenge Fund (UCF) aimed at addressing the challenges posed by rapid urbanisation across India. Information and Broadcasting Minister Ashwini Vaishnaw said the UCF will focus on “creative redevelopment of cities, positioning them as growth hubs” while strengthening water and sanitation systems to create modern, market-linked urban infrastructure. The centrally sponsored scheme will provide ₹1 lakh crore in central assistance from FY 2025-26 to FY 2030-31, extendable by three years.

Vaishnaw explained that the Centre’s contribution will be capped at 25% of project costs, while at least 50% will be mobilised from market sources such as loans, bonds, or public-private partnerships. The remaining 25% will come from states, Union territories, or urban local bodies. “With ₹1 lakh crore investment from the government of India, more than ₹3 lakh crore investment will come for urban areas,” he said, noting that urban infrastructure can no longer rely solely on budgetary grants.

The fund will have three main components. First, under creative redevelopment, the focus will be on rejuvenating congested central business districts, upgrading legacy infrastructure such as drainage, water supply, sewerage networks, and improving mobility and public spaces. Second, cities will be developed as growth hubs, connecting industrial, defence, tourism, port-based, and other economic anchors with trunk infrastructure and integrated planning to increase economic activity and boost manufacturing. The third component will address water and sanitation gaps, including stormwater drainage, flood mitigation, non-revenue water reduction, metering, and reuse of treated water.

Projects will be selected through a competitive “challenge-mode” system based on readiness, bankability, and measurable outcomes. Vaishnaw emphasised that “municipal control will remain with the municipal body and the state government,” while technology providers and industry players will participate in execution. Monitoring will be paperless, milestone-based, and include third-party verification and citizen consultations. Additionally, a ₹5,000 crore credit repayment guarantee corpus will enable smaller cities and those in the Northeast and hilly states to access market finance, supporting first-time loans of up to ₹7 crore.

Union Cabinet Approves ₹1 Lakh Crore Urban Challenge Fund to Transform Indian Cities

The Union Cabinet on Friday approved the ₹1 lakh crore Urban Challenge Fund (UCF) aimed at addressing the challenges posed by rapid urbanisation across India. Information and Broadcasting Minister Ashwini Vaishnaw said the UCF will focus on “creative redevelopment of cities, positioning them as growth hubs” while strengthening water and sanitation systems to create modern, market-linked urban infrastructure. The centrally sponsored scheme will provide ₹1 lakh crore in central assistance from FY 2025-26 to FY 2030-31, extendable by three years.

Vaishnaw explained that the Centre’s contribution will be capped at 25% of project costs, while at least 50% will be mobilised from market sources such as loans, bonds, or public-private partnerships. The remaining 25% will come from states, Union territories, or urban local bodies. “With ₹1 lakh crore investment from the government of India, more than ₹3 lakh crore investment will come for urban areas,” he said, noting that urban infrastructure can no longer rely solely on budgetary grants.

The fund will have three main components. First, under creative redevelopment, the focus will be on rejuvenating congested central business districts, upgrading legacy infrastructure such as drainage, water supply, sewerage networks, and improving mobility and public spaces. Second, cities will be developed as growth hubs, connecting industrial, defence, tourism, port-based, and other economic anchors with trunk infrastructure and integrated planning to increase economic activity and boost manufacturing. The third component will address water and sanitation gaps, including stormwater drainage, flood mitigation, non-revenue water reduction, metering, and reuse of treated water.

Projects will be selected through a competitive “challenge-mode” system based on readiness, bankability, and measurable outcomes. Vaishnaw emphasised that “municipal control will remain with the municipal body and the state government,” while technology providers and industry players will participate in execution. Monitoring will be paperless, milestone-based, and include third-party verification and citizen consultations. Additionally, a ₹5,000 crore credit repayment guarantee corpus will enable smaller cities and those in the Northeast and hilly states to access market finance, supporting first-time loans of up to ₹7 crore.