In a major decision, property rights would be conferred upon the owners of the houses built under the scheme.
A meeting of the Cabinet Committee on Economic Affairs, chaired by the Prime Minister Manmohan Singh, has approved launch of the first phase of Rajiv Awas Yojana (RAY) to facilitate affordable housing for slum dwellers, Home Minister P Chidambaram said after the meeting.
The aim of the scheme would be to encourage low-cost housing as well as develop the slums, he said, adding this would go a long way to check proliferation of slums.
The Centre would bear 50 per cent of the cost of slum redevelopment which could be used by the states and cities towards viability gap funding in order to encourage private sector participation.
The government also decided to establish a mortgage risk guarantee fund to facilitate lending to the urban poor for housing purposes with an initial corpus of Rs 1,000 crore.
The Central assistance would be conditional to reforms undertaken by the states, including conferring property rights to the owners, Chidambaram said.
"They (slum dwellers) will benefit by way of property rights and access to decent shelter, basic amenities and a dignified life", he said, adding that the initiative would also prevent mushrooming of slums.
Asked whether slums would be legalised, Chidambaram said, "Yes, if property rights are conferred up a dweller. At the moment, they lead a very precarious existence".