Ending weeks of suspense on whether he will directly take on Modi, Kejriwal made the announcement at a rally here, asserting he wanted to "defeat corrupt people".
"I am ready to face this challenge, but I will need your support. I don't have money to contest election. And like Madan Mohan Malviya, who built the Benaras Hindu University, seeking alms from people, even I shall have to do the same way," he said after the crowd roared in affirmation when he asked whether he should fight Modi.
Targeting Modi, the AAP chief said the BJP's Prime Ministerial candidate "will do anything to cross the 272 figure" required in the Lok Sabha to come to power.
Accusing Modi of being an "agent" of industrial houses, Kejriwal warned that if he comes to power, "land will be snatched from farmers and given to Adanis and Ambanis at dirt cheap rates. And farmers will have no option but to commit suicide."
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He said 60,000 small and medium enterprises in Gujarat had shut shop, all aimed at benefitting big industrialists.
He also targeted Rahul Gandhi, saying the 'shahenshah' (emperor) of Congress was also like Modi.
"Why do I want to contest from Varanasi, it is because at a time when leaders look for safe seats to fight elections, I take on them to defeat them," he added.