The Indian government has made significant strides toward urban development with the announcement of the Urban Challenge Fund worth Rs 1 lakh crore, unveiled during the presentation of the Union Budget 2025. This ambitious initiative aims to transform cities across the country, positioning them as growth hubs through focused programs on creative redevelopment and enhancements to water and sanitation services.
Finance Minister Nirmala Sitharaman emphasized the importance of the Urban Challenge Fund, stating, "The Government will set up an Urban Challenge Fund of ` 1 lakh crore to implement the proposals for 'Cities as Growth Hubs', 'Creative Redevelopment of Cities' and 'Water and Sanitation.'" This comprehensive approach to urban renewal promises to deliver financial support for various projects aimed at improving the quality of urban life nationwide.
The fund's introduction has been praised by industry experts who recognize its potential to stimulate innovation and efficiency within urban planning and infrastructure development. It arrives against the backdrop of increasing urbanization and the need for cities to adapt to growing populations.
According to Prashant Sharma, President of NAREDCO Maharashtra, the increases to the income tax exemption limit, now set at Rs 12 lakh per year, will significantly bolster disposable incomes, thereby encouraging investments in affordable and mid-income housing sectors. This improvement is aligned with the government’s broader strategy to promote homeownership among the middle class.
The Union Budget 2025 also includes allocations for the much-anticipated Rs 15,000 crore SWAMIH Fund 2, aimed at hastening the completion of over 1 lakh stalled housing projects. With the first SWAMIH fund having successfully completed 50,000 homes, the extension signifies the government’s commitment to easing financial strains on homebuyers and revitalizing the real estate market.
“The allocation of Rs 15,000 crore under the SWAMIH Fund for completing 1 lakh stalled housing units is a significant intervention, providing relief to buyers impacted by delayed projects and supporting supply-side stakeholders,” commented Piyush Bothra, Co-Founder and CFO of Square Yards.
Despite these advancements, the real estate sector expressed disappointment over the absence of specific measures directly benefiting it, considering the budget an opportunity missed. While acknowledging the Urban Challenge Fund as a progressive step, experts noted the pressing need for incentives such as industry status and single-window clearances to fully support the sector's potential.
Badal Yagnik, CEO of Colliers India, highlighted the potential of the National Manufacturing Mission and other funds to significantly influence growth across real estate sectors. He noted, "The extension of the SWAMIH fund is much-anticipated as several real estate projects continue to reel under stress due to funding constraints; this has delayed the delivery of homes." He also underscored the importance of rationalized taxes and enhanced exemption limits for driving higher real estate investments.
The government has recognized urban workers' needs through the introduction of new socioeconomic programs, aimed at bolstering their quality of life. This initiative contributes to the central vision of uplifting the urban poor and vulnerable populations through targeted financial and skill development, embodying the government’s intention for inclusive growth and sustainability.
Alongside the Urban Challenge Fund, the budget emphasized urban sector reforms focusing on governance and municipal services. The planned National Geospatial Mission aims to modernize urban planning by developing foundational geospatial infrastructure and data, enhancing decision-making processes within city development.
Sitharaman stressed, "This initiative is expected to encourage innovation in urban planning and infrastructure, ensuring more liveable and efficient cities for residents." By incentivizing states and urban local bodies to adopt these reforms, the government aims to create more responsive and adaptable urban environments.
Analyzing the possible impacts, the government's commitment to establishing smarter, more sustainable cities reflects its vision for future urban landscapes. Theencouragement of innovative financing solutions through the proposed Fund of Funds (FoF) with Rs 10,000 crore could potentially improve technology-driven solutions and efficiency within the real estate sector.
Despite widespread appreciation for the Urban Challenge Fund and other initiatives, industry leaders argue for additional measures to heighten the purchasing power of households. Some have proposed increasing home loan deduction limits to facilitate access for first-time homebuyers and end-users, thereby enhancing affordability and contributing to the estimated demand for 93 million housing units by 2036.
With these ambitious plans, India aims to convert its urban challenges during the Budget of 2025-26, focusing on comprehensive urban renewal processes, innovative funding mechanisms, and socioeconomic upliftment. The ultimate goal is to establish cities as engines of economic growth, catering to the needs of their inhabitants.