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The government’s updated ‘Urban Challenge Fund’ has rendered the attention of urban local bodies (ULB) an even more precious resource as they struggle to complete unfinished work under other schemes, including AMRUT, Swachh Bharat Mission Urban 2.0, ‘Smart Cities’, and Pradhan Mantri Awas Yojana, which also suffer from chronic underutilisation. The government has pitched the fund as a move towards “market-linked, reform-driven and outcome-oriented” urban infrastructure, with the Centre covering 25% of project cost if cities raise at least 50% through bonds, loans, and PPPs. This is an attempt to incorporate fiscal discipline in a system that has never properly devolved fiscal powers to ULBs. Many Indian cities cannot credibly borrow without first fixing the political economy of local taxes and transfers, which are shaped by State-level issues and under-investment in municipal capacity. Requiring cities to “earn” their growth risks sidelining weaker ones and shifting the focus from services such as formalising settlements to developing monetisable assets. The ₹5,000 crore guarantee may ease borrowing for smaller cities, but proper accounting and administrative capacity are essential. When a Parliamentary Standing Committee asked about the Fund’s eligibility criteria and application process, the Housing and Urban Affairs Ministry said that it was still “under examination”, a possible recipe for politically coloured spending.
Across sectors, the Centre has, since 2014, increasingly reduced the share of public support while asking public systems to fill the gap using private finance. The CSIR was among the first casualties and urban development could be the latest. In higher education, the move towards infrastructure loans turned public universities into debt-laden entities that were expected to recover costs by increasing fees, affecting poor students. Studies of the National Health Mission’s financial management have documented long delays to move funds through treasuries to implementing agencies, so in practice, hospitals have been asked to maintain services first and receive money later. Audits under the Ujwal DISCOM Assurance Yojana have exposed significant non-adherence and implementation gaps in the power sector. Private capital is not illegitimate and public systems should sometimes raise revenues; the issue is that the Centre increasingly conditions public support on market access instead of ensuring minimum service guarantees first. Thus, while the Fund’s instruments are legitimate, it will increase the risk of becoming insubordinate to “bankability” if land records are a mishmash, ULBs routinely violate ‘master plans’, and renters and low-income households do not receive additional protections.
Published – February 17, 2026 12:20 am IST
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Cities of debt: on the Urban Challenge Fund
