The new Union government system is pushing local authorities to move to market-based financing for urban development

The state government has given administrative sanction to implement projects under the Union Government’s new Urban Challenge Fund (UCF), which aims to fundamentally change the vision of development by pushing urban local bodies to shift to market-based financing for urban development. Under the scheme, which will run from 2026 to 2031, the Union government will provide 25% of the project cost as a grant, with a condition that at least 50% of the cost will be financed through bonds, bank loans and public-private partnerships (PPPs).

The Union Government, which has earmarked ₹1,00,000,000 under the UCF over a five-year period, aims to attract ₹4 crore from the total investment by providing up to 25% central assistance for urban projects. The 25% grant is further contingent on the state’s key commitments with regard to the implementation of the UCF, including the implementation of urban reforms and compliance with all provisions of the UCF guidelines regarding project preparation, evaluation, financing and monitoring.

Income generation

Changes in the funding structure could encourage local authorities to focus more on income-generating projects than welfare-oriented ones.

According to the operational guidelines for project implementation under the UCF, states are required to establish institutional mechanisms, including the State High Performance Steering Committee (SHPSC) and the State Level Technical Committee (SLTC), to evaluate, monitor and approve projects. The State Government has appointed the Mission Director, Atal Mission for Rejuvenation and Urban Transformation (AMRUT), as the State Mission Director for the Urban Challenge Fund.

The government also granted permission to the Principal Secretary, Local Government Department to sign a Memorandum of Understanding with the Ministry of Housing and Urban Affairs for participation and implementation of UCF in Kerala.

Published – 21 Jun 2026 20:12 IST