Urban Challenge Fund (UCF)

Posted 24 Mar 2025

Updated 28 Mar 2025

6 min read

Why in the News?

Budget 2025-26 announced the creation of Urban Challenge Fund (UCF).

What is the Urban Challenge Fund (UCF)?

Urban Challenge Fund (UCF) of Rs 1 lakh crore aims to encourage states to think innovatively towards attaining sustainable urbanisation and redevelopment goals in existing cities.
- Fund is to implement the proposals for 'Cities as Growth Hubs', 'Creative Redevelopment of Cities' and 'Water & Sanitation'
Financing Mechanism: Fund will finance up to 25% of the cost of bankable projects with a stipulation that at least 50% of the cost is funded from bonds, bank loans, and PPPs.
- An allocation of Rs. 10,000 crore is proposed for 2025-26.

What is the need for the UCF?

Cater to rising Urban Population: India's urban population increased from 27.7% in 2001 to 31.1% (377.1 million) in 2011, at a rate of 2.76% per year. (Census 2011).
Ensure Sustainability: Cities in India face the risk of looming water crisis, are prone to disasters like earthquakes, face severe pollution leading to urban heat island effect.
- E.g., Delhi is located in Seismic zone IV and is also one of the polluted cities in the world.
Support Developmental Projects: Focus on integrated development covering critical infrastructure components in Transport and Logistics, Energy, Water and Sanitation, etc.
Ensure absorption of the available funds: Ensuring ability to divert the available money properly into bankable, needs-based projects with effective delivery mechanisms.
Address issues with Urban Planning: Land parcels of high urban densities are sub-optimally utilized due to fragmented and poorly recorded ownership of land.
- Urban Planning is a state subject as per the 12^th Schedule of the Constitution.
Address Deficit of Human Resources: It is a major bottleneck as the State machinery lacks qualified urban planners responsible for urban planning and design.

Drivers of urbanisation like Economic and Structure

What more can be done to improve the situation of urban areas in India?

Re-engineering and Strengthening of Urban Governance Structures: It can be done based on the 2^nd Administrative Reform Commission (ARC) recommendations suggesting clear division of roles and responsibilities among various authorities.
City Master Plan: It should be statutorily backed as it is essential for socio-economic development, better liveability, inclusion, citizen engagement, environmental sustainability, etc.
- About 52% of statutory towns in India lack any kind of master plan. (NITI Ayog, 2020)
Town Planning Professionals: An All India Urban Planning Service similar to other civil services like Indian Information Service, etc., should be set up to have qualified planners. [High Level Committee (HLC) on Urban Planning under the Ministry of Housing and Urban Affairs (MoHUA)].
- NITI Ayog recommends constitution of National Council of Town and Country Planners as a statutory body.
Integrated Capacity Building Programme: MoHUA is funding capacity-building events for town planners and urban functionaries which should be strengthened.
- Further, capacity building institutions should be rejuvenated by strengthening centres of excellence established by MoHUA.
Reviewing existing legislations: States should undertake a regular review of planning legislations (including town and country planning or urban and regional development acts, etc.).
Involvement of Citizens: Technocratic planning without adequate citizen participation is the reason for the disconnect between plan preparation and its acceptance on ground.
Strengthen the role of Private Sector: This should be enhanced by creating gainful employment opportunities, adopting of fair processes for procuring technical consultancy services, etc.

Measures taken for reforming Urban Areas

India

Swachh Bharat Mission focuses on safe sanitation, waste management with focus on door to door collection/segregation, waste processing etc.
Smart Cities Mission promotes cities that provide core infrastructure, clean and sustainable environment and decent quality of life through the application of 'smart solutions'.
National Urban Livelihood Mission (NULM) aims to reduce poverty and vulnerability of the urban poor households by enabling them to access gainful self-employment and skilled wage employment.
PM SVANidhi scheme, special micro-credit facility of the Ministry of Housing and Urban Affairs for providing affordable loans to street vendors.
Pradhan Mantri Awas Yojana (Urban) (PMAY-U) intends to provide housing in urban areas among Economically Weaker Sections/Low-Income Groups and Middle Income Groups.
Atal Mission for Rejuvenation and Urban Transformation (AMRUT) focuses on development of basic infrastructure, in the selected cities and towns, in the sectors of water supply, sewerage, etc.
Incentives to states under schemes like Scheme for Special Assistance to States for Capital Investment 2022-23 – Part – VI (Urban Planning Reforms), etc.

Global

Sustainable Development Goal-11 aims to make cities and human settlements inclusive, safe, resilient and sustainable.
United Nations Human Settlements Programme (UN-Habitat) is the focal point for all urbanization and human settlement matters within the UN system.
Other Initiatives like Global Alliance for Buildings & Construction (Global ABC), the UrbanShift initiative, or the Cool Coalition by United Nations Environment Programme (UNEP) to reduce climate impacts in urban environments.