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Urban Challenge Funds to start flowing from September: Union housing minister
There is a focus on circularity through waste recycling, waste-to-energy systems, and reuse of treated water
Starting in September, Union minister of housing and urban affairs Manohar Lal Khattar on Wednesday said that 30% of central funds will be released to cities for projects under the ₹1 lakh crore urban challenge fund (UCF).
The scheme announced in last year’s budget focuses on market-based finance, with a total investment of ₹4 lakh crore in urban sector from FY 2025-26 to FY 2030-31, extendable by three years. While the Centre and state can fund 25% of the project cost, the remaining amount must be financed through bonds, loans, or private participation.
According to the guidelines released on Wednesday, private participation can also include community-led private investment mobilisation. Ward-level foundations, resident welfare associations (RWAs), and community organisations are allowed to mobilise private investment for local urban utilities.
Urban local bodies (ULBs) can designate private entities as “Special Purpose Urban Infrastructure Manager (SPUIM)” for integrated delivery of housing, civic infrastructure, and operations and maintenance in large-scale development.
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“For the functioning of SPUIM, ULBs can notify simplified bye-laws and outcome-based regulatory frameworks, with clearly defined accountability mechanisms to ensure adherence to service benchmarks, quality standards, and implementation timelines,” said Khattar.
The minister also said that while ₹90,000 crore of central funding is allocated for infrastructure projects, ₹5,000 crore each will be spent on project preparation costs and on the credit guarantee mechanism, as announced earlier, for smaller and hilly cities. The Union budget has allocated ₹10,000 crore for this.
UCF will also focus on urban governance reforms with states and Union Territories required to submit baseline data on asset registers, land bank inventories, improved revenue collection and better project structuring, integrated planning that aligns land use, mobility, climate resilience and economic growth with statutory plans, among others.
States and ULBs were also asked to prepare proposals and aim to provide in-principle approval within 15 days for a workshop to be held in May, allowing the work on detailed project reports (DPRs) to begin in May, the minister said.
Khattar said that while funds will be earmarked to states based on their urban population size, laggards will lose out on funding, with diversion of funds from states with slower implementation going to those that are more proactive in implementing their projects. “The earlier you come, the earlier you will get (funding). If you are a bit late, you will have to bear the delay,” he said.
What projects will be allowed under UCF?
The guidelines allow projects under digital governance, infrastructure expansion, sustainability, and improved livability. It includes creation of integrated command and control centres, digital twins, property and utility digitisation, and drone-based mapping to strengthen governance and service delivery.
It will also include the development and upgrading of trunk infrastructure, including water, sewage, and underground utility systems, particularly in cities, to reduce congestion.
There is a focus on circularity through waste recycling, waste-to-energy systems, and reuse of treated water.
Urban decongestion is addressed through multi-level parking, improved traffic systems, better last-mile connectivity, transit-oriented development, and integration of transit hubs with residential areas.
The plan also targets revitalisation of old city areas and markets through redevelopment, improved public spaces, heritage conservation, and slum rehabilitation.
Also Read: Smaller cities early movers to access Urban Challenge Fund
The scheme also allows non-motorised transport through pedestrianisation, cycling networks, and safe school zones, alongside transit-oriented development to create dense, accessible, and walkable urban clusters.
Measures for flood prevention through drainage and sponge infrastructure, integrated waste processing, and greenfield urban development in emerging clusters such as aerocities and tech parks are also permitted.
Additional priorities include road and flyover development, riverfront projects, and support for reforms, such as land bank systems and the relocation of polluting activities, such as inner-city dairies.
For larger cities with more than 2 million population, secondary priorities extend to building convention centres, recreational spaces, libraries, and sports infrastructure.
