The Ministry of Housing & Urban Poverty Alleviation has abandoned the National Housing Board’s Aam Aadmi Awas proposal where the government was to build 31 million houses, each of 25 sq m costing Rs 1 lakh.

Instead, the scheme has been renamed ‘Interest Subsidy Scheme for Housing the Urban Poor’ where the government will bear 5% of the interest on loans of up to Rs 1 lakh for building a similar-size house by the economically weaker sections (with monthly income up to Rs 3,300).

For the low income groups (income up to Rs 7,300), the subsidy will be available for building a house up to 45 sq m provided the loan does not exceed Rs 1.6 lakh. Both groups can borrow Rs 50,000 for repairs and expansion with the government bearing 5% of the loan interest.

And for a political measure, the ministry has introduced the UPA’s thrust on reservation with preference to Scheduled Castes, Scheduled Tribes and minorities “in accordance with their proportion in the total population of city/urban agglomerate during the 2001 Census”.

All ministries have been asked to accord “Topmost Priority” to the scheme and ensure that their views on the proposal are in by the end of this week. The timeline is to ensure Cabinet approval by December so that subsidy disbursals start from January 2008.

Under the scheme, the Centre will provide Rs 3,995 crore over the next five years to provide “purchasability” to the urban poor and create an “enabling environment” in securing housing for them. The scheme will close in 2012.

“The case for interest subsidy on housing loans for the urban poor essentially rests on the grounds of enhancing affordability, leveraging funds and extending coverage to lower deciles of the income pyramid,” says the proposal seeking first-stage clearance from the Expenditure Finance Committee.