The centrepiece of the package is the proposed Urban Challenge Fund (UCF), which will provide Rs 1 lakh crore in central assistance over five years. The fund will cover up to 25% of project costs, subject to states and urban local bodies raising at least 50% of funding from the market.
The government said the UCF is expected to catalyse total investments of around Rs 4 lakh crore in the urban sector over the next five years. The move signals a shift in India’s urban development model — from grant-based financing to a market-linked, reform-driven and outcome-oriented framework.
The decisions underscore the government’s dual strategy of accelerating infrastructure development while strengthening the financial architecture to support private enterprise. By blending public capital with marketbased financing models such Was the hybrid annuity model (HAM) and structured fund-offunds mechanisms, the package seeks to reduce logistics costs, enhance urban productivity and deepen capital markets, reinforcing infrastructure as a key driver of medium-term growth.
Easing Congestion
The fund will be operational from FY26 to FY31, with an extendable implementation period up to FY34. It will be used to roll out budget proposals related to positioning cities as growth hubs, undertaking creative redevelopment projects, and strengthening water and sanitation systems.
Information and broadcasting minister Ashwini Vaishnaw said Friday that the launch followed “extensive consultations” with states, explaining the gap between the initial announcement and formal approval. In another key decision, the cabinet cleared construction of a 15.79-kilometre road-cum-rail tunnel under the Brahmaputra in Assam at a cost of Rs 18,662 crore under the engineering, procurement and construction (EPC) model. The project is expected to cut travel time between key points in the region from about six hours to 20 minutes, reducing the travel distance from 240 km to roughly 34 km.The government also approved three national highway projects with a combined outlay of over Rs 11,000 crore. These include a 107.67-km, four-lane highway in Gujarat to be developed under HAM at a capital cost of Rs 4,583.64 crore. Additionally, the cabinet cleared the upgradation of a 154.635-km highway stretch in Maharashtra under the EPC mode at a cost of Rs 3,320.38 crore. It also approved the widening of NH 167 in Telangana, covering 80.01 km, at a cost of Rs 3,175.08 crore under HAM as part of the NH (O) scheme.
In the rail sector, three multitracking projects covering 12 districts across Delhi, Haryana, Maharashtra and Karnataka were approved at an estimated cost of Rs 18,509 crore. The projects will add about 389 km to the existing network of Indian Railways.
The multi-tracking works are scheduled for completion by FY31 and are expected to generate direct employment equivalent to about 265,000 man days during construction. The added capacity is aimed at easing congestion, improving freight movement and enhancing overall operational efficiency. Urban transport also received a boost with the approval of an 11.6-km extension of the Noida Metro Rail Project from Noida Sector 142 to Botanical Garden. The elevated corridor will include eight stations and, once operational, will take the total active metro rail network in Noida and Greater Noida to 61.62 km. The extension is expected to improve last-mile connectivity and reduce road congestion in the fast-growing NCR region.
Beyond physical infrastructure, the cabinet cleared a Rs 10,000 crore Startup India Fund of Funds (FoF) 2.0, aimed at sustaining momentum in startup financing. The new fund will expand the scope of the earlier FoF 1.0 programme. The revamped framework provides greater operational flexibility, including support for larger and longer-tenure funds and higher government contributions to Alternative Investment Funds (AIFs) focused on deep tech and high-tech manufacturing.
Also, Prime Minister Narendra Modi on Saturday gave its go-ahead to PM RAHAT (Road Accident Victim Hospitalisation and Assured Treatment) Scheme aimed at ensuring immediate medical assistance to road accident victims.