In a major development, Finance Minister Nirmala Sitharaman unveiled plans to establish the Urban Infrastructure Development Fund (UIDF) during her Budget speech for the fiscal year 2023-24. The UIDF aims to address the shortage in priority sector lending by utilizing funds for the development of urban infrastructure in Tier 2 and Tier 3 cities. This strategic move highlights the government's commitment to boost the growth and modernization of urban areas outside major metropolitan centres. The establishment of the UIDF is expected to play a crucial role in promoting sustainable development in smaller cities across the country.
The National Housing Bank (NHB) has announced the operationalization of the Urban Infrastructure Development Fund (UIDF), which was introduced in the budget with an initial corpus of Rs 10,000 crore. The UIDF aims to address the challenge of imbalanced regional development in our country, where the benefits of growth are often limited to a few densely populated cities. It specifically focuses on Tier 2 and Tier 3 cities, which still face hurdles in terms of urban planning, funding, and planned development.
By supplementing the efforts of state governments, the UIDF aims to provide a stable and predictable source of finance for the creation of urban infrastructure in these cities. The interest rate on UIDF loans has been set at Bank Rate minus 1.5%, currently at 5.25%. The loans will be repaid in five equal annual instalments within seven years, with a two-year moratorium period for principal repayment and quarterly interest payments.
The fund will prioritize projects that have a significant impact, particularly those related to basic services such as sewerage and solid waste management, water supply and sanitation, and the construction and improvement of drains and stormwater drains. Project proposals must have a minimum size of Rs 5 crore (Rs 1 crore for North-East and Hilly States) and a maximum size of Rs 100 crore. However, the fund cannot be utilized for maintenance or administrative expenses, and certain sectors such as housing, power, telecom, rolling stock, urban transport, health, and education institutions are excluded from the purview of UIDF.
Both new and ongoing projects are eligible to access the UIDF and should align with the various urban missions and programs of the Government of India. States are advised to leverage resources from the grants of the 15th Finance Commission and existing schemes, while also adopting appropriate user charges when accessing the UIDF to ensure wider coverage and maximize the benefits of these low-cost funds.
The NHB has advised the allocation of the first tranche of Rs 10,000 crore for the financial year 2023-24 to states and union territories, inviting project proposals under the UIDF. The allocation is based on the urban population percentage in the respective states/UTs and eligible towns/cities. The finance departments of states/UTs have been designated as the nodal department for implementing the fund, while the NHB is facilitating its operation through its regional offices across the country. To expedite implementation, the NHB has organized a workshop on UIDF for state officials on July 10, 2023, in New Delhi, coinciding with their 35th Foundation Day event.
The NHB and states are working to ensure timely sanctioning and disbursal of projects so that the benefits of the UIDF can be realized through improved infrastructure in targeted Tier 2 and Tier 3 cities.
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