On February 16, 2026, the Union Cabinet chaired by Prime Minister Narendra Modi approved the Urban Challenge Fund (UCF) — a ₹1 lakh crore Centrally Sponsored Scheme under the Ministry of Housing and Urban Affairs (MoHUA) — to transform the financing ecosystem for urban infrastructure across India.
The UCF will provide Central Assistance covering 25% of project costs, with a minimum of 50% of total project financing required to be mobilised from market sources such as municipal bonds, bank loans, and Public-Private Partnerships (PPPs). The scheme is expected to leverage a total investment of ₹4 lakh crore over FY 2025–26 to 2030–31, with a possible extension to FY 2033–34. The fund targets all 4,223 urban local bodies (ULBs) across India, with special focus on Tier-2 and Tier-3 cities. A Credit Repayment Guarantee Scheme of ₹5,000 crore is embedded within the UCF to provide first-time access to market finance for cities in Northeastern and hilly states — providing a Central guarantee of up to ₹7 crore or 70% of the loan amount (whichever is lower).
The initiative operationalises Budget 2025–26 announcements on 'Cities as Growth Hubs,' 'Creative Redevelopment of Cities,' and 'Water and Sanitation,' moving cities from grant-dependence to fiscal self-sufficiency. For Rajasthan, cities like Jaipur, Jodhpur, Kota, Udaipur, and Ajmer stand to benefit, given the state's rapid urbanisation rate of 24.9% (Census 2011), which has strained civic infrastructure.