The proposal is in line with the government’s emphasis on urban infrastructure development and improving quality of urban living, said people familiar with the developments. It estimates India’s urban infrastructure sector to attract around ₹10 lakh crore of investment till fiscal 2029.
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“Some of these suggestions also aim to address a gap in the availability of financing and barriers to the issue of municipal bonds, and look at further capacity building,” said an official, requesting anonymity.
Further linkages likely with Urban Challenge Fund
UIDF was set up in fiscal 2024 with an initial corpus of ₹10,000 crore. The government has broadened the scope of the fund to cover all urban infrastructure activities except housing, power, telecom and urban transport.
“There are also plans for further linkages with existing schemes such as the Urban Challenge Fund, which was announced in the last budget,” said another official, adding these suggestions may find mention in the budget speech.
Established through priority sector lending shortfall and managed by the National Housing Bank (NHB), the fund focuses on midsize cities that have potential to develop into regional economic hubs. Public agencies can utilise the fund to create urban infrastructure.Also Read: Budget 2026 can build a Viksit Bharat powerhouse on farms, youth & middle classIn FY25, the government allocated an additional ₹10,000 crore to UIDF. However, in order to augment the availability of funds for rural credit, ₹7,000 crore from this was reallocated to the Short-term Co-operative Rural Credit Refinance Fund.
In August, the government informed the Lok Sabha that the reallocated amount would be replenished to UIDF through a new allocation in FY26.
As per latest available data, the central government had received proposals worth ₹13,138.17 crore from states and union territories for funding under UIDF till July 2025, and sanctioned ₹10,746.60 crore.
MoS for finance Pankaj Chaudhary, citing NHB, informed Lok Sabha last August that 816 projects had been sanctioned under UIDF, including nine where the work had been completed.