The State government has accorded administrative sanction for the implementation of projects under the Union government’s new Urban Challenge Fund (UCF) which aims at a fundamental change in developmental vision by pushing urban local bodies to move towards market-based financing of urban development. Under the scheme, which will run from 2026 to 2031, the Union government will provide 25% of the project cost as grant with a stipulation that at least 50% of the cost is funded from bonds, bank loans and public private partnerships (PPPs).

The Union government, which has earmarked ₹1 lakh crore under the UCF for the five year period, aims to attract ₹4 lakh crore in total investments by providing up to 25% Central assistance for urban projects. The 25% grant is further dependent on key commitments by the State with regard to implementation of the UCF, including implementation of urban reforms and adherence to all provisions of the UCF guidelines related to project preparation, appraisal, financing and monitoring.

Revenue generation

The changes in the funding structure could push the local bodies to pivot more towards revenue generating projects rather than welfare-oriented ones. 

As per the operational guidelines for the implementation of projects under the UCF, the States are required to constitute institutional mechanisms, including a State High Powered Steering Committee (SHPSC) and State Level Technical Committee (SLTC), for appraisal, monitoring and approval of projects. The State government has designated the Mission Director, Atal Mission for Rejuvenation and Urban Transformation (AMRUT), as the State Mission Director for the Urban Challenge Fund.

The government has also accorded permission to the Principal Secretary of the Local Self-Government department for signing the Memorandum of Understanding with the Ministry of Housing and Urban Affairs for participation and implementation of the UCF in Kerala.