Smaller cities early movers to access Urban Challenge Fund

SMaller cities such as Nashik and Warangal ar potential to be among the betimes movers in accessing the Centre’s ₹4 lakh crore Urban dispute monetary fund (UCF), which is set to roll out in April, HT has learntAnnounced by finance minister Nirmala Sitharaman in last year’s Union Budget, 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, an official at the Union ministry of housing and urban affairs (MoHUA) said.The UCF is a centrally sponsored scheme to support projects under three verticals: developing cities as growth hubs; water and sanitation; and redevelopment of urban areas with ageing infrastructure. The government said the initiative will lead to 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 financing will come from market-based sources, while the Centre will cover 25% of the cost. The remainder will be shared by states, Union Territories (UTs), urban local bodies (ULBs) or other sources.The official cited above said cities of all sizes will be eligible for funding under the scheme and land value capture mechanisms can be leveraged to make projects financially viable. “The idea is not just to replace pipes or fix infrastructure, but to reimagine how these areas function,” the official said, adding that projects may include redesigning public spaces, improving walkability, and reorganising dense urban cores.Among the early candidates looking to leverage the fund is Maharashtra’s Nashik, which is preparing two projects with a combined cost of ₹1,058.88 crore as part of a wider infrastructure push ahead of the 2027 Simhastha Kumbh Mela.Nashik municipal commissioner Manisha Khatri said the first project, under the water and sanitation vertical, includes a ₹400 crore plan to improve water supply — covering upgrades at Mukane dam, a new 274 MLD water treatment plant at Vilholi, and a 23.6km pipeline to improve distribution; and a ₹225 crore “Clean Godavari” project to expand sewer lines by about 112km, upgrade treatment capacity of the city from 404 MLD to about 550 MLD, and divert untreated wastewater into treatment plants instead of the river.The second project will be under the creative redevelopment vertical. Under the Nashik Integrated Road and Mobility Augmentation Plan (NIRMAP), the city plans road improvements, smart parking, truck terminals and traffic systems linked to a central command centre to manage congestion during the event and beyond, Khatri said.“The city had already raised ₹400 crore through green and clean Godavari bonds for water supply and sewerage works, and some mobility components were being planned through PPP. At the same time, there was outreach from the Centre asking cities to prepare proposals under the UCF. Because Nashik is preparing for the Kumbh, the need for these projects is immediate, so everything—from funding to planning—has moved in parallel. The focus is on putting in place infrastructure such as water supply, sewer networks, and traffic management systems in time to handle the large number of visitors expected during the event,” Khatri said.Similarly, the Greater Warangal Municipal Corporation is proposing two key projects under the UCF, including an underground drainage system, according to a senior Telangana government official.Half of the project, pegged at ₹5,257.2 crore, will be funded through loans from multilateral agencies, with Germany’s KfW (Kreditanstalt für Wiederaufbau) expected to be a key player and having already given in-principle approval. The remaining half will be funded by the state and Centre contributing 25% each, the official said on anonymity.Municipal-level fficials in Odisha said various projects in Bhubaneswar, Cuttack and Rourkela proposed to be funded under the UCF are on the works, but they are yet to be vetted by the state’s municipal administration department.Tathagata Chatterji, an urban governance expert and professor at Xavier Institute of Management, Bhubaneswar, said it is encouraging that smaller cities are leading in accessing UCF, demonstrating both project viability 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 governance reforms needed for long-term impact,” she said.Debarpita Roy, another urban policy expert, said a pragmatic approach to enable small cities to access UCF should be structured over two phases.In the initial two-three years, the focus must be on strengthening own-source revenues (OSR), developing a robust city-level project pipeline, and exploring inter-ULB collaborations — particularly for pooled financing instruments. “The state government needs to take the lead on this. With these foundations in place, ULBs would be better positioned to effectively access and leverage UCF over the remaining tenure,” she said.