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Union Budget 2025 eyes urban cities transformation with ₹1 lakh crore challenge fund

In her Budget speech, Nirmala Sitharaman also announced the revamp of PM SVANidhi, the loan scheme for street vendors.

Ruckus in Lok Sabha amid Parliament Budget session 2025. (Sansad TV via PTI Photo)

Finance Minister Nirmala Sitharaman Saturday announced the establishment of an Urban Challenge Fund in the Union Budget 2025 to mobilise Rs 1 lakh crore, which will incentivise cities to raise funds through municipal bonds, public-private partnerships (PPPs) and loans.

In her Budget speech, Sitharaman said the fund would implement proposals for “cities as growth hubs, creative redevelopment of cities and water and sanitation”. The government would provide 25 per cent of the funds for the projects. “This fund will finance up to 25 per cent of the cost of bankable projects with a stipulation that at least 50 per cent of the cost is funded from bonds, bank loans, and PPPs. An allocation of Rs 10,000 crore is proposed for 2025-26,” she said.

Under the fund, while the government plans to give Rs 10,000 crore, cities are expected to get the remaining Rs 40,000 crore from floating municipal bonds, entering into private-public partnerships, and taking loans, according to a Ministry of Housing and Urban Affairs source. Cities would be asked to submit their proposals for the three kinds of projects.

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Under “creative redevelopment of cities”, existing cities with high levels of congestion could be refurbished. This fund would encourage cities to raise market finances, as opposed to the Rs 10,000 crore Urban Infrastructure Development Fund (UIDF) announced in the Budget 2023-2024. A proportion of funds from bonds, PPP and loans was not mandated in the UIDF.

Meanwhile. to boost incomes for the urban poor, Sitharaman announced a revamp of Prime Minister Street Vendors AtmaNirbhar Nidhi (PM SVANidhi), the existing small working capital loan scheme for street vendors, in her Union Budget 2025 speech.

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Sitharaman said: “Our government has been giving priority to assisting urban poor and vulnerable groups. A scheme for the socio-economic upliftment of urban workers will be implemented to help them improve their incomes, have sustainable livelihoods and a better quality of life. PM SVANidhi scheme has helped over 68 lakh street vendors, giving them respite from high-interest informal sector loans. Building on this success, the scheme will be revamped with enhanced loans from banks, UPI-linked credit cards with Rs 30,000 limit, and capacity-building support.”

PM SVANidhi was launched in 2020 when the Covid-19 pandemic and the lockdowns hit street vendors. Under the scheme, vendors can avail themselves of loans of Rs 10,000, Rs 20,000, and Rs 50,000. As many as 95.84 lakh loans worth Rs 13,741 crore have been disbursed so far.

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The finance minister also proposed an expenditure of Rs 96,777 crore for the Housing and Urban Affairs Ministry, marking a 17 per cent increase from Budget 2024-2025 (Rs 82,576.57 crore). However, the revised estimate for 2024-2025 was Rs 63,669.93 crore.

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