Telangana targets ₹10,000-cr Urban Challenge Fund

Hyderabad: The state government is aiming to secure nearly ₹10,000 crore from the Centre’s ₹1 lakh crore Urban Challenge Fund (UCF), announced in the Union Budget for 2026–27, to finance major urban infrastructure initiatives, official sources said on Saturday.

The government plans to utilise the UCF to support projects such as the Musi rejuvenation programme and expansion of Hyderabad Metro Rail as part of a broader push to undertake infrastructure works worth nearly ₹40,000 crore in the 2026–27 financial year. Allocations for these projects are expected to feature prominently in the State Budget to be presented in the Assembly on March 20, sources added.

The UCF, planned for the period 2025–31, is a competitive and reform-linked mechanism for large-scale urban infrastructure development. Under the funding structure, the Centre provides 25 per cent of the project cost as a grant, the state contributes another 25 per cent, while the remaining 50 per cent must be mobilised through market-linked sources such as municipal bonds or public-private partnerships.

The state government has already begun leveraging the fund for key projects. Last week, it sanctioned ₹5,257.20 crore for the first phase of a comprehensive underground drainage system in the Greater Warangal Municipal Corporation area covering the tri-cities of Warangal, Hanamkonda and Kazipet. The project aims to address chronic waterlogging, improve sanitation and replace incomplete drainage works executed under earlier schemes.

Officials said the Warangal project follows the UCF funding model, with about ₹1,314 crore expected as Central support, a matching contribution from the state government, and the remaining amount through external assistance or loans. Encouraged by this progress, the government hopes to draw up to ₹10,000 crore from the UCF to support infrastructure development across urban local bodies.

Chief Minister A. Revanth Reddy has directed officials to tap the UCF for major infrastructure initiatives including the Bharat Future City, expansion of Hyderabad Metro Rail, Regional Ring Road, radial roads and expressways that require additional funding for early completion.

The State Budget is expected to allocate higher funds for the municipal administration and urban development department to ensure the state’s matching share for such projects is built into the budget, enabling quicker access to Central assistance.

Apart from the UCF, the state government is also seeking to maximise benefits from the Centre’s special assistance to states for capital investment, which provides 50-year interest-free loans for infrastructure development. Union finance minister Nirmala Sitharaman has allocated around ₹1.8 lakh crore under this scheme in the Union Budget for 2026–27, and the state government is hopeful of securing at least ₹15,000 crore for its infrastructure projects. These funds would be in addition to allocations available through other Central schemes such as the Central Road Fund and the Urban Infrastructure Development Fund.