Shaping the Urban Challenge Fund

India's cities are brimming with potential but hampered by outdated funding models and overburdened infrastructure.

- VINAYAK CHATTERJEE

Capital expenditure on urban utilities infrastructure (excluding real estate) between 2011 and 2018 averaged just 0.6 per cent of gross domestic product (GDP)—barely a quarter of what is required.

The laudable objectives of the 74th amendment to the Indian Constitution, enacted in 1992, that enjoined cities to "take charge of their own destinies," have remained largely unfulfilled. Recognizing this, the Union Budget in February announced a long-overdue shift. "The Union Government will set up an Urban Challenge Fund (UCF) of ₹1 lakh crore to implement the proposals for 'Cities as Growth Hubs', 'Creative Redevelopment of Cities' and 'Water and Sanitation'," declared Finance Minister Nirmala Sitharaman—marking a strategic departure from entitlement-based grants towards a competitive, performance-linked funding framework.

The Census of India classifies an area as urban if: (i) it is a statutory town with a notified urban local body, or (ii) it is a Census town that meets all three conditions—a minimum population of 5,000, a density of at least 400 persons per sq km, and 75 per cent of the male workforce in non-agricultural activities.

Applying these criteria in the 2027 Census is expected to show that in many parts of India, urban areas will account for over 60 per cent of the population—up sharply from 31 per cent in 2011. An extreme case is Kerala. Its urbanization is expected to go up from 73.19 per cent in 2022 to 96 per cent by 2036. There are many other less extreme cases of "urban creep." To address this, the NITI Aayog is piloting a new framework based on economic activity and land use in four city-regions—the Mumbai Metropolitan Region, Varanasi, Surat, and Visakhapatnam. Clearly, the true scale of India's urban challenge is significantly underestimated.