Urban Challenge Fund and Market-Linked Urban Reforms
Context India’s Urbanisation And The Urban Challenge Fund
India’s urbanisation is at a critical juncture, with cities driving GDP and economic activity but facing infrastructure gaps, fiscal stress and climate risks. The Urban Challenge Fund (UCF) has been introduced to promote productive, sustainable and inclusive urban growth.
Source: A new compact to reshape India’s cities, The Indian Express
Core Points
- Cities contribute a major share to GDP and host key economic clusters but face infrastructure deficits, climate vulnerabilities and institutional fragmentation.
- The Urban Challenge Fund (UCF) provides central assistance of ₹1 lakh crore from FY 2025–26 to FY 2030–31.
- The fund aims to catalyse nearly ₹4 lakh crore of total investment.
- Central assistance is capped at 25% of project cost.
- At least 50% of funding must be mobilised from market sources; the remaining can come from states, urban local bodies (ULBs) or other channels.
- Emphasis on accessing capital markets through revenue-backed, bankable projects.
Three Verticals of UCF
1. Cities as Growth Hubs
- Integrated spatial and transit planning.
- Infrastructure along economic corridors.
- Development of industrial, tourism and logistics clusters.
- Focus on competitiveness and productivity.
2. Creative Redevelopment of Cities
- Regeneration of historic cores and central business districts.
- Brownfield redevelopment and transit-oriented development.
- Reorganisation of public land to unlock urban value.
3. Water and Sanitation
- Service saturation and wastewater reuse.
- Flood mitigation and legacy waste remediation.
- Integration of climate resilience.
- Introduction of ₹5,000-crore Credit Repayment Guarantee Scheme.
- Enables smaller ULBs (population below 1 lakh) and cities in hilly and northeastern states to access market finance with central guarantees.
- Access to central assistance linked to reforms:
- Improving creditworthiness.
- Strengthening asset management.
- Digitising service delivery.
- Enhancing operational efficiency.
- Adopting integrated land use and mobility planning.
- Encourages structured risk-sharing and deeper private sector participation in design, financing and operations.
- Project preparation support, transaction advisory assistance and digital monitoring to enhance viability and investor confidence.
- Potential to deepen the municipal bond market and broaden urban infrastructure financing.
- Operates through a competitive challenge-based process involving states, ULBs, financial institutions, credit rating agencies and private developers.
- Positions urbanisation as an investment opportunity driven by market discipline, reform incentives and measurable outcomes.
Key Details
Central Assistance
₹1 lakh crore
FY 2025–26 to FY 2030–31
Expected Total Investment
Nearly ₹4 lakh crore
Central Assistance Cap
25%
of project cost
Minimum Market Funding
50%
Credit Repayment Guarantee Scheme
₹5,000 crore
Special Focus
ULBs with population below 1 lakh and cities in hilly and northeastern states
GDP Base Revision and Fiscal Federal Implications
Context
India will release a new national income series on February 27, shifting the GDP base year from 2011–12 to 2022–23 along with methodological reforms. The changes have implications for economic assessment, policymaking and fiscal federal dynamics.
Source: Redrawing the economic map: Why India’s 2026 GDP reset is a fiscal game-changer, The Indian Express
Core Points
- Base year revised from 2011–12 to 2022–23 to reflect current economic structure.
- Addresses structural shifts in technology, consumption and sectoral composition.
- Old base year assumed stable sectoral weights, which no longer reflect economic realities.
Methodological Reforms
- Greater use of administrative and survey-based data instead of proxy-driven estimates.
- Use of Periodic Labour Force Survey (PLFS) for updated employment composition.
- Annual Survey of Unincorporated Sector Enterprises improves measurement of informal firms.
- Reduced reliance on fixed formal-informal output ratios.
- Better capture of digital services, platform-based activity and modern financial intermediation.
Changes in Real GDP Estimation
- Continued use of Wholesale Price Index (WPI) and Consumer Price Indices (CPI).
- Greater alignment between sector and appropriate deflator.
- WPI reflects traded goods and producer-level prices; excludes services.
- Misapplication of WPI to services may distort growth estimates.
- Increased use of sector-specific deflators and double deflation methods.
- CPI revisions based on Household Consumption Expenditure Survey 2022–23 reflect current consumption patterns.
- Improved separation of price effects from real growth in a services-led economy.
Implications for States and Fiscal Federalism
- State budgets, borrowing limits and tax devolution linked to GSDP.
- Earlier method relied on apportionment of national value added using employment and wage indicators.
- Assumed stable relative state shares across sectors.
- Revised series uses more state-specific administrative and survey data.
- Improved use of GST records, enterprise surveys and labour data for direct estimation of state output.
- Enhanced measurement of services, informal activity and digital sectors at state level.
- Under FRBM framework, fiscal deficit and debt ratios are expressed as share of GSDP.
- Upward GSDP revision improves fiscal ratios and expands borrowing space.
- Downward revision tightens fiscal constraints.
- Finance Commission assigns 10% weight to GSDP in tax devolution formula.
- Reduced weight for income distance.
- GSDP revisions can alter states’ tax shares without change in real activity.
Broader Implications
- GDP and GSDP influence debt-to-GDP and fiscal deficit ratios.
- State-level investment decisions depend on GSDP growth, per capita income and sectoral composition.
- Measurement changes affect perceptions of macroeconomic stability and state performance.
- Revised methodology may influence capital allocation across states.
- GDP revision reflects improvement in statistical governance.
- Emphasis on regular and methodologically robust updates to measurement systems.
Key Details
- New base year: 2022–23 (earlier 2011–12).
- Release date: February 27.
- PLFS used for employment composition.
- Annual Survey of Unincorporated Sector Enterprises improves informal sector estimation.
- CPI revised using Household Consumption Expenditure Survey 2022–23.
- Finance Commission assigns 10% weight to GSDP in tax devolution formula.
Methodological Upgrades In The New National Accounts Series
Context
The upcoming release of the new national accounts series introduces methodological and statistical improvements to enhance the accuracy and granularity of GDP and GVA estimates.
Source: New GDP data set to capture economy more accurately, The Hindu
Core Points
- Incorporation of methodological upgrades and new datasets to improve GDP and GVA accuracy.
- Base year revised from 2011–12 to 2022–23 to better reflect the current economy and improve time comparisons.
- Sector-wise methodological improvements implemented as recommended by sub-committees.
Sector-Specific Improvements
Non-financial Private Corporate Sector
- Earlier method allocated entire company GVA to the dominant sector.
- New method uses activity-wise revenue share to allocate value added across sectors.
- Enables better sectoral representation of company activities.
General Government Sector
- Inclusion of housing services provided by governments to employees.
- Enhanced coverage of autonomous institutes and local bodies.
- Improves measurement of government output.
Household Sector
- Annual use of ASUSE and PLFS instead of extrapolation from old data.
- Direct annual estimation of household sector contribution.
Private Final Consumption Expenditure
- More granular measurement.
- Greater use of Household Consumer Expenditure Surveys.
- Direct estimation based on production and related data sources.
Use of New and Enhanced Data Sources
- Expanded use of GST data in annual national accounts.
- GST data to estimate regional output of private corporations.
- Improved estimation of private sector value added to GDP.
- GST data used to identify active private companies and improve estimation of non-reporting firms.
- Greater reliance on directly reported data rather than imputation due to improved State reporting from local and autonomous bodies.
- Use of Statistical Table Related to Banks in India (STRBI) for estimating public and private bank activity.
- Replacement of proxy-based estimation for private NBFCs with actual financial data from the Ministry of Corporate Affairs.
- More effective utilisation of ASUSE data to capture previously under-represented aspects of the economy.
Key Details
- Base year updated: 2011–12 to 2022–23.
- Annual use of ASUSE and PLFS for household sector estimation.
- Expanded GST data usage for regional and corporate output estimation.
- STRBI used for banking sector activity estimation.
- Actual financial data used for private NBFC estimation instead of proxies.
Income Mobility Trends In India (2014–2025)
Context
The analysis examines income mobility across households in India between 2014 and 2025. It highlights upward and downward shifts across income groups and explores variations across rural-urban, caste and religious categories.
Source: Analysing India’s cycle of deprivation and affluence, The Hindu
Core Points
- Income mobility offers deeper insights into distributional changes than poverty and inequality measures alone.
- Households classified into three income groups based on 2014 per capita income rank:
- Top 10%
- Next 40%
- Bottom 50%
- Mobility defined as movement relative to 2014 position: upward, downward or no change.
- Period divided into two sub-periods: 2014–19 and 2019–24, anchored around national elections.
- Based on inflation-adjusted per capita income data from Consumer Pyramids Household Survey (CMIE), 2014–2025, using a balanced panel.
All-India Trends
- Downward mobility nearly doubled from 14% (2015) to 26.8% (2025).
- Share of households with no change declined from over 70% to below 50%.
- Upward mobility rose from 14.1% to 23.5%, but remained lower than downward mobility.
- By 2025, over one in four households were worse-off compared to 2014.
- Pattern reflects rising vulnerability and uneven gains.
Rural–Urban Patterns
Rural Areas
- By 2025, nearly 29% worse-off than 2014.
- Share remaining in same group fell below half.
- Downward mobility consistently exceeded upward mobility.
- Sharpest deterioration during 2014–19; vulnerability persisted thereafter.
Urban Areas
- Downward mobility increased gradually.
- Upward mobility improved faster than in rural areas.
- Gains more concentrated in urban centres.
- Overall contrast indicates greater rural exposure to economic volatility.
Caste Patterns
- Downward mobility increased across all caste groups.
- Particularly sharp rise among OBC and SC households.
- By 2025, about a quarter or more of OBC and SC households worse-off than in 2014.
- Upward mobility improved for Unreserved and OBC households.
- SC households experienced muted and uneven upward mobility.
- Steepest increase in downward mobility occurred during 2014–19.
- Scheduled Tribes showed comparatively lower downward mobility and episodes of stronger upward movement.
- Caste remains a key determinant of income mobility.
Religious Patterns
- Downward mobility rose across all religious groups.
- Increase more pronounced among Hindu and Muslim households.
- Upward mobility stronger and often exceeded downward mobility for Sikh and Christian households in several years.
- Gains for Hindus and Muslims were gradual and uneven.
- Among Muslims, upward mobility remained weaker than for Hindus.
- Downward mobility among Hindus and Muslims spiked around election years.
- Stronger upward movement for Sikhs and Christians in early years, weakening later.
Structural Inequality and Mobility
- Higher district-level income dispersion associated with greater downward mobility.
- Households in more unequal districts more likely to move downward.
- Historically disadvantaged caste groups and Muslims exhibited lower mobility.
- Education, urban location and larger household size linked with better prospects.
- Entrenched inequality restricts economic ascent.
Political and Economic Context
- 2019 general election marked a turning point.
- COVID-19 pandemic caused major humanitarian and economic disruption.
- Disruptions persisted beyond the pandemic period.
- Resilience among OBCs, SCs and Muslims slowed further descent into deprivation.
Policy Implications
- Economy with more downward than upward mobility risks social instability.
- Need to focus on public health, education, employment-intensive sectors and social protection.
- Addressing discrimination is central to restoring mobility and economic confidence.
Key Details
- Period studied: 2014–2025.
- Downward mobility: 14% (2015) → 26.8% (2025).
- Upward mobility: 14.1% → 23.5%.
- Nearly 29% rural households worse-off by 2025.
- Finance period division: 2014–19 and 2019–24.
- Data source: Consumer Pyramids Household Survey (CMIE), real per capita income.
India’s Strategic Push On Critical Minerals
Context
India has shifted critical minerals from a peripheral issue to a central pillar of its industrial, energy and geopolitical strategy. Recent policy measures and Budget announcements signal a strong move from policy formulation to execution.
Source: The shift of critical minerals to India’s strategic centre, The Hindu
Core Points
- Earlier limited policy attention; several minerals (including lithium) were classified as atomic minerals until August 2023, restricting private mining.
- Latest Union Budget mainstreams critical minerals in national strategy.
- Focus has shifted from policy creation to execution at scale.
Policy Developments
- India identified 30 critical minerals.
- Eased exploration norms for junior miners.
- Rationalised royalty rates.
- National Critical Mineral Mission (NCMM) launched in January 2025 with ₹16,300 crore outlay.
- India among few countries with comprehensive critical minerals framework.
Processing and Capability Gaps
- Mineral discovery and extraction take years or decades.
- China controls up to 90% of global processing capacity for several critical minerals.
- India capable of producing high-purity copper, graphite, rare earth oxides, tin and titanium (often above 99.9% purity).
- Existing production oriented towards conventional uses and limited volumes.
- Clean tech and defence needs require technological upgrading and capacity expansion.
- Skills from chemicals, pharmaceuticals and textiles sectors can support mineral processing.
Priority Areas for Implementation
1. Demand Creation for Processed Minerals
- Budget removes import duties on capital goods for mineral processing.
- High capital expenditure remains a challenge.
- Key constraint: lack of assured domestic demand for processed minerals.
- Delays in backward integration create uncertainty for processors.
- Expanding deployment of domestic EVs, batteries, solar and wind can strengthen entire ecosystem.
- Demand creation identified as key industrial policy lever.
2. AI-First Mineral Exploration
- NCMM targets 1,200 exploration projects by FY2031.
- Exploration expenditure for nine critical minerals eligible for tax deductions.
- Four minerals (beryllium, tantalum, lithium, niobium) were earlier on restricted atomic list.
- Proposed AI-first approach for exploration.
- Coordination needed across IndiaAI Mission, National Geospatial Policy and Mission Anveshan.
- Use of seismic AI tools and National Geoscience Data Repository to improve discovery prospects.
3. Technological Sovereignty and Geopolitical Strategy
- 2025 disruptions in rare earth magnets and battery supply chains exposed vulnerabilities.
- Government announced rare earth corridors in coastal States.
- Reduced import duties on monazite sands.
- States encouraged to leverage infrastructure and manpower for global demand.
International Partnerships
- Strengthen partnerships with Australia, European countries, Japan, UK and US.
- Encourage advanced processing and manufacturing firms to set up in India.
- ₹7,280 crore scheme for sintered rare earth permanent magnets introduced.
- Need for regulatory certainty, legal clarity, market access and research collaboration.
- Strengthen institutional links, including UK-India Critical Minerals Supply Chain Observatory.
- Cooperation under India–EU Free Trade Agreement highlighted.
Key Details
- 30 critical minerals identified.
- NCMM outlay: ₹16,300 crore (January 2025).
- Target: 1,200 exploration projects by FY2031.
- ₹7,280 crore scheme for rare earth permanent magnets.
- China controls up to 90% of global processing capacity for several minerals.
- Import duties removed on capital goods for mineral processing.
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