NEW DELHI: The Centre’s flagship Urban Challenge Fund (UCF) has approved or accorded in-principle approval to 33 projects since the scheme was operationalised in April, with Odisha, Madhya Pradesh and Gujarat accounting for more than half of the sanctioned proposals.
According to the government data, Odisha has secured seven projects, while Madhya Pradesh and Gujarat have received six each, reflecting an early lead by states that have moved quickly to prepare bankable urban infrastructure proposals.
Announced in the Union Budget and backed by a central assistance corpus of Rs 1 lakh crore, the Urban Challenge Fund marks a significant departure from the Centre's earlier urban development schemes, which largely relied on direct government grants. Instead, the UCF is designed to leverage public money to attract private and institutional investment into city infrastructure.
Under the funding model, the Centre will provide only up to 25 per cent of a project’s cost, while at least 50 per cent must be financed through market-based sources, including municipal bonds, bank loans and public-private partnerships (PPPs). The remaining cost will have to be borne by the concerned state government, Union Territory or urban local body.
The financing structure is intended to mobilise nearly four times the Centre's investment, but it also places greater responsibility on states and city administrations to develop financially viable projects capable of attracting lenders and investors.
“The UCF scheme has been operationalized with the launch of Operational Guidelines on April 15, 2026. So far, 33 projects have been approved/accorded in-principle approval,” Union Housing and Urban Affairs Minister Manohar Lal told the Lok Sabha in response to questions on the scheme's implementation. The Minister said all cities are eligible to participate, subject to the appraisal framework and eligibility conditions laid down in the operational guidelines issued by the Ministry of Housing and Urban Affairs.
The scheme will support projects across urban redevelopment, mobility, last-mile connectivity, non-motorised transport, water supply and sanitation, and climate-resilient infrastructure. The government has said priority will be given to projects that are scalable, financially viable and capable of generating long-term economic and social returns. The UCF will run from 2025-26 to 2030-31, with provision for a three-year extension. Its early rollout will be closely watched as a test of whether Indian cities—many of which continue to rely heavily on government transfers-- can increasingly access capital markets and private finance to fund urban infrastructure.
