The Union Cabinet has approved the launch of the Urban Challenge Fund (UCF) with total Central assistance of Rs 1 lakh crore, aimed at driving market-linked urban infrastructure development and catalysing investments worth Rs 4 lakh crore over the next five years.In another decision, it also approved the Startup India Fund of Funds 2.0, which will promote startups engaged in deep-tech innovation.According to a government statement, the Urban Challenge Fund marks a shift away from grant-based financing towards a market-linked, reform-driven and outcome-oriented model of urban infrastructure creation. The scheme will be operational from 2025-26 to 2030-31, with an extendable implementation window till 2033-34.Under the framework, Central assistance will cover 25 per cent of project costs, while at least 50 per cent of funding must be mobilised from market sources such as municipal bonds, bank loans and public-private partnerships (PPPs). The remaining portion can be funded by states, Union Territories, urban local bodies or other sources.Minister for Information and Broadcasting Ashwini Vaishnaw briefed mediapersons on the decisions taken by the Cabinet, which met on February 13 at the new PMO building, Seva Tirth.The fund is designed to leverage private investment, strengthen municipal finance systems and improve governance, while supporting citizen-centric urban reforms and high-quality infrastructure delivery. It aims to create “resilient, productive, inclusive and climate-responsive cities”, positioning urban centres as key drivers of India’s next phase of economic growth.To achieve this, a dedicated Rs 5,000 crore corpus will be used to enhance the creditworthiness of 4,223 cities, including Tier-II and Tier-III cities, particularly for first-time access to market finance.In addition, a credit repayment guarantee scheme of Rs 5,000 crore has been approved to facilitate first-time access to market finance for cities and urban local bodies (ULBs) in northeastern and hilly states, as well as smaller ULBs (with populations below one lakh) in other states and Union Territories.The scheme will provide a Central guarantee of up to Rs 7 crore or 70 per cent of the loan amount (whichever is lower) for first-time loans. Upon successful repayment, a Central guarantee of Rs 7 crore or 50 per cent of the loan amount (whichever is lower) will be available for subsequent loans.This will support projects worth a minimum of Rs 20 crore for first-time borrowers and Rs 28 crore for subsequent projects in smaller cities.Projects under the fund will be selected through a challenge-based framework based on transformative impact, sustainability and reform orientation. Funding will be linked to reforms, milestones and clearly defined outcomes, with continuation of reforms being a prerequisite for further fund releases.Paperless monitoring of projects and reforms will be enabled through a single digital portal of the Ministry of Housing and Urban Affairs.Meanwhile, the Cabinet also approved the establishment of the Startup India Fund of Funds 2.0 with a corpus of Rs 10,000 crore to mobilise venture capital for India’s startup ecosystem.Vaishnaw said while the first phase helped build the ecosystem, FoF 2.0 will focus on deep-tech and tech-driven innovative manufacturing. Breakthroughs in high-tech areas requiring patient and long-term capital will be prioritised.