Cabinet Approves Rs 1 Lakh Crore Urban Challenge Fund and Rs 10,000 Crore Startup FoF 2.0

The Union Cabinet has approved the launch of the Urban Challenge Fund with a total Central assistance of Rs 1 lakh crore, marking a significant shift in India’s approach to urban infrastructure financing. The initiative is designed to unlock nearly Rs 4 lakh crore in overall investments over the next five years by leveraging market linked funding and reform driven governance.

Unlike traditional grant based models, the Urban Challenge Fund will operate on a performance oriented and outcome focused framework. Central assistance will cover 25 per cent of project costs, while at least 50 per cent of funding must be mobilised through market instruments such as municipal bonds, bank loans and public private partnerships. The remaining contribution will come from states, Union Territories and urban local bodies.

The scheme will run from 2025 26 to 2030 31, with an extended implementation window until 2033 34. A dedicated corpus of Rs 5,000 crore has been allocated to enhance the creditworthiness of 4,223 cities, including Tier II and Tier III centres. Additionally, a Rs 5,000 crore credit guarantee mechanism will support smaller cities and those in northeastern and hilly states in accessing market finance for the first time.

In a parallel decision, the Cabinet approved the Startup India Fund of Funds 2.0 with a corpus of Rs 10,000 crore. The second phase will prioritise deep tech, advanced manufacturing and technology driven innovation, providing patient capital to high potential sectors.

Together, these decisions underscore the government’s strategy to strengthen urban transformation and position innovation led entrepreneurship as a key driver of India’s next phase of economic growth.