UIDF: Funding Boost for Tier-2 and Tier-3 Cities in India

The Urban Infrastructure Development Fund (UIDF), recently announced in the FY24 Budget, is gearing up to disburse its inaugural batch of loans, earmarked for the support of ongoing projects in tier-2 and tier-3 cities. Officials from the Union Ministry of Housing and Urban Affairs (MoHUA) have confirmed this development.State governments are actively engaged in crafting proposals for new projects. MoHUA officials have called upon states and Union Territories to submit proposals for projects ranging from Rs 50 million to Rs 1 billion by the end of September.The UIDF has been established with the primary objective of offering affordable loans to 459 tier-2 cities, characterised by a population ranging from 1 lakh to 9,99,999, as well as 580 tier-3 towns with populations ranging from 50,000 to 99,999, based on the 2011 Census data.The National Housing Bank (NHB), tasked with the execution of the UIDF, released comprehensive guidelines in July and urged states to present their proposals by September.A senior Ministry official stated, For the initial two years of UIDF, we have permitted cities to seek funding for ongoing projects, ensuring that funds will be disbursed expeditiously. In parallel, states are diligently preparing detailed project reports (DPRs) for new projects.The responsibility for implementing the fund rests with the finance departments of the respective states. This fund can be utilised as a loan for 11 distinct types of infrastructure projects, including water supply, sanitation, road construction, comprehensive area development, local area planning for decongestion, heritage conservation, town-planning schemes, and parks equipped with open gyms that don't involve substantial construction.Furthermore, the UIDF can complement funding from other Ministry schemes such as Swachh Bharat Mission and AMRUT.According to NHB guidelines, cities are eligible for loans at an attractive rate of 5.25%, which is 1.5 percentage points lower than the prevailing bank interest rate. Repayment of the loan is to be completed within seven years from the date of withdrawal, through five equal installments.The loan amount is determined based on the project's cost. For projects costing between Rs 50-100 million, the loan amount will cover 90% of the expenses. For projects with costs ranging from Rs 100-500 million, the loan amount will be 85%, and for projects between Rs 500-1000 million, the loan amount will constitute 75%.Furthermore, NHB officials have undertaken outreach programs in Bihar on July 31 and in Guwahati on July 24, targeting officials from Assam, Nagaland, Mizoram, and Tripura. During these sessions, they provided valuable insights into the UIDF and emphasised the significance of fostering collaboration between state governments and the NHB.