Context:
India’s rapid urbanisation has highlighted the urgent need for new financing models for city infrastructure. To address this, the Union Budget 2025 announced the creation of an Urban Challenge Fund (UCF) worth ₹1 lakh crore, marking a strategic departure from entitlement-based grants to a competitive, performance-linked funding framework.
What is the Urban Challenge Fund (UCF)?
The Urban Challenge Fund (UCF) is a ₹1 lakh crore financing mechanism announced in the Union Budget 2025–26 to support transformative and bankable urban development projects in India.
Key Features of UCF:
- Corpus: ₹1 lakh crore
- Initial Allocation (FY 2025–26): ₹10,000 crore
- Objective: To promote innovation, competitiveness, and sustainability in urban development.
- Focus Areas:
- Cities as Growth Hubs
- Creative Redevelopment of Cities
- Water and Sanitation
Funding Mechanism:
- UCF will finance up to 25% of project costs.
- At least 50% of funding must come from market sources like:
- Municipal bonds
- Bank loans
- Public–Private Partnerships (PPPs)
- Remaining portion to be managed by local/state governments
