New Delhi: To develop cities as growth hubs, push for their creative redevelopment, and provide essential infrastructure (water and sanitation), Union Finance Minister Nirmala Sitharaman Saturday announced the setting up of a Rs 1 lakh crore Urban Challenge Fund in the Union Budget 2025–26.
“This fund will finance up to 25 percent of the cost of bankable projects with a stipulation that at least 50 percent of the cost is funded from bonds, bank loans, and Public-Private Partnership. An allocation of Rs 10,000 crore is proposed for 2025–26,” Sitharaman said while presenting the budget.
The announcement aligns with the Narendra Modi-led government’s continued focus on improving urban infrastructure for the sustainable development of cities. Since 2022, the government has announced a series of reforms and initiatives, including the incubation of new cities and the setting up of an Urban Infrastructure Development Fund (UIDF) worth Rs 10,000 crore for tier 2 and tier 3 cities, among others.
The allocation for the Ministry of Housing and Urban Affairs saw an increase from Rs 82,576.57 crore for 2024–25 to Rs 96,777 crore for 2025–26. The revised estimate for 2024–25 was Rs 63,669.93 crore.
While urban development experts have welcomed the Centre’s decision to allocate a significant amount for the development of cities, a section of experts said that a large number of municipal corporations might not be able to meet the criteria of raising 50 per cent of the project cost from the market or through public-private partnership (PPP).
Urban development expert P.S.N. Rao, professor at the School of Planning and Architecture in Delhi, told ThePrint that it is a very good move that the government is committing a reasonably large amount of money for infrastructure projects and focusing on the sustainable development of cities. “Municipal corporations which are financially better off and have the technical capacities to raise funds from the market will be able to benefit from this. I think the corporations in small cities will not be in a position to access these funds as they don’t have the capacity to raise funds from the markets.”
He added, “But we will wait for the details of the scheme. The government should increase the percentage of central government assistance from 25 percent to 50 percent for small corporations to ensure the planned development of Tier 2 and Tier 3 cities.”
Nithya Ramesh, director of urban design at Jana Urban Space Foundation—a Bengaluru-based organisation that works on improving the quality of life in Indian cities—told ThePrint that the Urban Challenge Fund has the potential to improve quality of services.
“However, drawing from past challenges and urban missions, a more tailored approach could yield better outcomes. Structuring the challenge to address the distinct needs of metro, large, and small cities—each with a pre-approved project pipeline—will ensure that solutions are aligned with local contexts and urban realities,” she said.
She added that the focus should be on developing walkable, transit-oriented neighbourhoods around metro stations in metropolitan cities. “For small cities, the focus should be on strengthening their role as district headquarters, ensuring that they provide essential services in healthcare, education and legal sectors to surrounding rural areas.”
Urban development is one of the six domains, including taxation, mining, and power, among others, where the government has proposed to implement major reforms. The finance minister announced that urban sector reforms related to governance, municipal services, urban land, and planning will be incentivised.
In the 2024–25 budget, the Centre had said that it would work along with states for the planned development of not only cities but peri-urban areas, and facilitate the development of cities as “growth hubs”. Sitharaman said that the Centre will formulate a framework for enabling policies, market-based mechanisms, and regulations for the “creative brownfield redevelopment of existing cities with a transformative impact” and prepare Transit-Oriented Development (TOD) plans for 14 cities.
While several initiatives have been announced in the past few years, the Ministry of Housing and Urban Affairs is yet to implement some of them. The ministry is yet to announce the names of cities for which TOD plans will be prepared. It is also yet to finalise the names of cities that will receive Rs 1,000 crore each under the incubation of new cities challenges—the 15th Finance Commission had recommended Rs 8,000 crore for the incubation of eight new cities.
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Initiative for urban poverty livelihood
For the socio-economic upliftment of the urban poor, Sitharaman said that a special scheme will be implemented. According to senior ministry officials, the ministry is working on the launch of a new National Urban Livelihood Mission (NULM), which will focus on vulnerable occupational groups such as gig workers, construction workers, domestic help, among others.
After the success of the PM SVANidhi scheme, which was announced in 2020 to provide financial support to street vendors to revive their livelihoods, Sitharaman said that the scheme will be revamped.
“PM SVANidhi scheme has benefitted more than 68 lakh street vendors, giving them respite from high-interest informal sector loans. Building on this success, the scheme will be revamped with enhanced loans from banks, UPI-linked credit cards with a Rs 30,000 limit, and capacity-building support,” Sitharaman said.
Recognising platform-based gig workers, the Modi government has announced that gig workers will be given identity cards and arrangements will be made for their registration on the government’s e-Shram portal. Last year, in November, the labour ministry had asked all online platforms to register their workers on the e-Shram portal.
Enhanced allocation for key schemes
The allocation for key schemes such as Pradhan Mantri Awas Yojana–Urban, Atal Mission for Rejuvenation and Urban Transformation (AMRUT), and PM-eBus Sewa has been increased.
The government is pushing to augment water and sanitation infrastructure in cities. For this, Rs 10,000 crore has been allocated to its flagship mission, the Atal Mission for Rejuvenation and Urban Transformation (AMRUT). While Rs 8,000 crore was allocated in 2024–25, it has been revised to an estimated Rs 6,000 crore.
To improve urban transport in cities, the government is focusing on expanding the metro network and augmenting bus transport. The allocation for the metro project is Rs 31,239 crore for 2025–26. This is higher than the revised estimates of Rs 24,601 crore. For the PM-eBus Sewa scheme, which was launched in 2023, the government has allocated Rs 1,310 crore.
In November 2019, the Special Window for Affordable and Mid-Income Housing (SWAMIH) fund was set up—with contribution from the government, banks and private investors—to expedite the completion of incomplete housing projects in the country. In the Union Budget 2025-26 speech, Sitharaman announced the second phase of the SWAMIH fund. An allocation of Rs 15000 crore was announced to complete one lakh incomplete dwelling units.
(Edited by Radifah Kabir)
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