Smaller cities like Nashik and Warangal are likely to be among the first to reach the centre. $The Rs 4 lakh crore Urban Challenge Fund (UCF), which is scheduled to start in April, HT has learnt
Finance Minister Nirmala Sitharaman announced in the Union Budget last year that the scheme will finally take off with the start of the new financial year, with states expected to receive the final guidelines in the first week of April, a Union Ministry of Housing and Urban Affairs (MoHUA) official said.
The UCF is a centrally sponsored scheme to support projects under three sectors: developing cities as centers of growth; Water and sanitation; And redevelopment of urban areas with old infrastructure. The government said that the initiative will result in a total investment of $4 lakh crore in the urban sector over the next five years.
Under the scheme, at least 50% of the project funding will come from market-based sources, while the center will cover 25% of the cost. The rest will be shared between states, union territories (UTs), urban local bodies (ULBs) or other sources.
Cities of all sizes will be eligible for financing under the scheme, and land value collection mechanisms can be leveraged to make the projects financially viable, the above-mentioned official said. “The idea is not just to replace pipes or repair infrastructure, but to reimagine how these areas function,” the official said, adding that projects could include redesigning public spaces, improving walkability, and reorganizing dense urban centers.
Among the first candidates looking to benefit from the fund is Nashik Corporation in Maharashtra, which is preparing two projects at a total cost of $1,058.88 crore as part of a broader infrastructure push ahead of the 2027 Simhastha Kumbh Mela.
Nashik Municipal Commissioner, Manisha Khatri, said that the first project, under the water and sanitation sector, includes a $Rs 400-crore plan to improve water supply – covering improvements at Mokan Dam, a new 274 million liter water treatment plant at Velhuli, and a 23.6 km pipeline to improve distribution; And a $The Rs 225-crore ‘Clean Godavari’ project will expand sewerage lines by about 112 km, raise the city’s treatment capacity from BDT 404 million to about BDT 550 million, and divert untreated sewage to treatment plants instead of the river.
The second project will be within the framework of creative vertical redevelopment. Under the Nashik Integrated Road and Mobility Enhancement Plan (NIRMAP), the city plans to improve roads, smart parking, truck stops and traffic systems linked to a central command center to manage congestion during the event and beyond, Khatri said.
“The city has really risen $400 crore through Godavari Green and Clean Bonds for water supply and sanitation works, and some mobility components have been planned through public-private partnership. At the same time, there have been communications from the Center asking cities to prepare proposals under the UCF framework. Because Nashik is gearing up for Kumbh, the need for these projects is immediate, so everything – from financing to planning – is moving in parallel. Khatri said the focus is on setting up infrastructure such as water supply, sewerage networks and traffic management systems in time to handle the large number of visitors expected during the event.
Likewise, the Greater Warangal Municipal Corporation is proposing two major projects under the UCF, including an underground sewerage system, according to a senior Telangana government official.
Half of the project is tied to $Rs 5,257.2 crore will be financed through loans from multilateral agencies, with the German Development Bank (Kreditanstalt für Wiederaufbau) expected to be a major player and has already given in-principle approval. The remaining half will be funded by the state and the Center with a contribution of 25% each, said the official, who requested anonymity.
Municipal level officials in Odisha said several projects in Bhubaneswar, Cuttack and Rourkela proposed to be funded under the UCF fund are under implementation, but are yet to be vetted by the state municipal administration department.
Tathagata Chatterjee, an urban governance expert and professor at Xavier Institute of Management in Bhubaneswar, said it is encouraging that small cities are leading in accessing the City Transformation Facility, demonstrating the feasibility of the project and growing institutional readiness.
“However, the real test will be whether these investments translate into stronger local economies and tangible improvements in urban service delivery, while sustaining the financial and administrative reforms needed to achieve long-term impact,” she added.
Debarpita Roy, another urban policy expert, said the practical approach to enabling small towns to access UCF should be organized in two phases.
In the first two or three years, the focus should be on enhancing private source revenues, developing a robust pipeline of city-wide projects, and exploring ULB collaborations – especially for pooled financing instruments. “The state government needs to take the lead on this. With these foundations in place, ULBs will be in a better position to effectively access and benefit from the UCF during the remaining period,” she said.
