NEW DELHI: The Cabinet has approved the launch of Urban Challenge Fund with total central assistance of Rs 1 lakh crore over five years, to help states tackle the day-to-day challenges of rapid urbanisation and steer creative redevelopment of cities, positioning them as growth hubs. It also approved establishment of Startup India Fund of Funds 2.0 with a corpus of Rs 10,000 crore to mobilise venture capital for the startup ecosystem in the country.Announcing the decisions, I&B minister Ashwini Vaishnav said UCF will focus on creative redevelopment of cities, developing them as growth hubs and strengthening water and sanitation systems to drive transformative, market-linked urban infrastructure creation. The Centre-sponsored scheme was announced in 2025-26 Budget.

Under this framework, central assistance will cover 25% of a project’s cost, provided that at least 50% of the funding is mobilised from the market. Govt said this will catalyse a total investment of Rs 4 lakh crore in the urban sector over the next five years. “The move marks a paradigm shift in India’s urban new development approach from grant-based financing to market-linked, reform-driven and outcome-oriented infrastructure creation,” it said. UCF will leverage market financing, private sector participation and citizen-centric reforms to deliver high-quality urban infrastructure.All cities with a population of 10 lakh or more, all state capitals and major industrial cities with a population of more than one lakh can avail the fund. All municipal areas in hilly and NE states, as well as smaller ones with a population below 1 lakh, will be eligible for support under Credit Repayment Guarantee Scheme, with Rs 5,000 crore having been approved for it.