3 min readFeb 27, 2026 06:38 AM IST
First published on: Feb 27, 2026 at 06:38 AM IST
India’s urbanisation story is entering a decisive phase. Cities today account for a dominant share of the country’s GDP, host its most dynamic economic clusters and increasingly shape the quality of life of millions. Yet they also face persistent infrastructure deficits, climate vulnerabilities, fiscal constraints and institutional fragmentation. The challenge is to urbanise productively, sustainably and inclusively.
The recently approved Urban Challenge Fund (UCF) represents a significant shift. With a central assistance outlay of Rs 1 lakh crore over FY 2025–26 to FY 2030–31, and a design expected to catalyse nearly Rs 4 lakh crore of total investment, the fund marks a transition towards a market-linked, reform-driven and outcome-oriented framework for urban infrastructure.
Central assistance is capped at 25 per cent of project cost, and cities must mobilise at least 50 per cent from market sources. The rest may come from states, urban local bodies or other channels. This signals that urban infrastructure must increasingly access capital markets through bankable, revenue-backed projects.
The UCF is structured around three verticals. The first, cities as growth hubs, supports integrated spatial and transit planning, infrastructure along economic corridors, and the development of economic anchors such as industrial, tourism or logistics clusters. The objective is not merely to build assets but to enhance competitiveness and productivity.
The second, creative redevelopment of cities, addresses the congestion and decline of historic cores and central business districts. By encouraging brownfield regeneration, transit-oriented development and the reorganisation of public land, the fund seeks to unlock value within existing urban footprints.
The third is water and sanitation, emphasising service saturation, wastewater reuse, flood mitigation and remediation of legacy waste sites. Climate resilience is woven into this framework.
One of the most innovative elements is the Rs 5,000-crore Credit Repayment Guarantee Scheme. For the first time, smaller urban local bodies — particularly those with populations below 1 lakh, along with cities in hilly and northeastern states — are being enabled to access market finance with structured central guarantees.
Access to central assistance is contingent on reforms. Cities are expected to improve creditworthiness, strengthen asset management systems, digitise service delivery, enhance operational efficiency and adopt integrated land use and mobility planning frameworks.
The UCF also redefines the role of the private sector. By mandating market financing and encouraging structured risk-sharing arrangements, it opens the door for deeper private participation in design, financing and operations.
Project preparation support, transaction advisory assistance and digital monitoring systems are intended to strengthen project viability and investor confidence. If implemented effectively, this could deepen India’s municipal bond market and broaden the financing base for urban infrastructure.
The Ministry of Housing and Urban Affairs has positioned the UCF within a broader ecosystem. States, urban local bodies, financial institutions, credit rating agencies and private developers are expected to engage through a competitive challenge-based process that rewards readiness and innovation.
The UCF reframes urbanisation as an investment opportunity to be leveraged. By embedding market discipline, reform incentives and measurable outcomes into its design, it seeks to drive the next phase of India’s urban transformation.
The writer is secretary, Ministry of Housing and Urban Affairs
