URBAN CHALLENGE FUND
- Recently, The Union Cabinet chaired by the Prime Minister, Shri Narendra Modi approved the launch of the Urban Challenge Fund (UCF) with a total Central Assistance (CA) of Rs. One lakh crore.
- CA will cover 25% of the project cost, subject to raising minimum 50% of the project cost from market.
- This will lead to a total investment of Rs. Four lakh crore in urban sector in next five years
- Marking a paradigm shift in India’s urban development approach from grant- based financing to market-linked, reform-driven and outcome-oriented infrastructure creation.
WHY URBAN CHALLENGE FUND?
- India’s cities are growing fast.
- They need better roads, water, transport, housing and planning.
So government launched UCF to:
- Attract private investment
- Improve urban governance
- Make cities climate-resilient
- Boost economic growth
It will lead to around ₹4 lakh crore total investment in 5 years.
FUNDING PATTERN
Very important for exams.
- Centre will give 25% of project cost
- Minimum 50% must be raised from market
Market sources include:
- Municipal Bonds
- Bank Loans
- Public–Private Partnerships (PPP)
Remaining amount can be from:
- States
- UTs
- Urban Local Bodies (ULBs)
This ensures cities become financially strong.
KEY FEATURES
(A) Challenge-Based Selection
Projects will be selected through competition.
Only proposals which are:
- High impact
- Reform-oriented
- Sustainable
will get funding. Funding linked with:
- Milestones
- Reforms
- Clear outcomes
No reform → No further funds.
(B) STRONG REFORM FOCUS
Reforms in:
- Urban Governance
- Financial systems
- Operational efficiency
- Urban Planning
Paperless monitoring through single digital portal of Ministry of Housing and Urban Affairs.
(C) Private Sector Participation
- Structured risk-sharing system
- Service delivery benchmarking
- PPP encouraged
Goal → Make ULBs a bankable asset class
5000 CRORE CREDIT REPAYMENT GUARANTEE SCHEME
Special support for:
- Northeastern States
- Hilly States
- Small ULBs (<1 lakh population)
Guarantee Details
For first-time loan:
- Central guarantee up to ₹7 crore OR 70% of loan (whichever lower)
For second loan (after successful repayment):
- ₹7 crore OR 50% of loan (whichever lower)
This will help:
- Small cities access market finance
- Improve creditworthiness
Supports projects of:
- Minimum ₹20 crore (first time)
- ₹28 crore (subsequent)
PROJECT VERTICALS
(1) Cities as Growth Hubs
- Identify economic nodes
- Transit-oriented development
- Greenfield and semi-greenfield projects
- Urban mobility
- Infrastructure for competitiveness
(2) Creative Redevelopment of Cities
- Renewal of CBDs
- Heritage area development
- Brownfield regeneration
- Climate resilience
- Disaster mitigation
- Decongestion in hilly & NE cities
(3) Water and Sanitation
- Water supply improvement
- Sewerage & stormwater systems
- Rurban infrastructure
- Solid waste management
- Legacy waste treatment
- Focus on Swachhata
COVERAGE OF THE FUND
Eligible cities:
- All cities with population 10 lakh+
- All State & UT capitals
- Industrial cities with population 1 lakh+
Also:
- All ULBs in NE & Hilly States
- Smaller ULBs (<1 lakh) under Guarantee Scheme
In principle, almost all cities covered.
REFORM LINKED FUNDING FRAMEWORK
Funding tied to reforms like:
- Governance & digital reforms
- Financial & credit reforms
- Service delivery efficiency
- Transit-oriented development
- Green infrastructure
- KPIs with third-party verification
- Sustainable O&M systems
OUTCOME ORIENTATION
Projects will be judged on:
- Economic growth
- Job creation
- Private investment
- Revenue mobilization
- Safety
- Inclusiveness
- Cleanliness
- Climate impact
This makes it result-based funding.
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