The union cabinet approved a proposal to invest $4.3 billion in bonds of International Bank for Reconstruction and Development (IBRD), an arm of the World Bank, which will make India eligible for higher borrowing from the multilateral lender.
The investment will allow India to borrow $4.3 billion from the World Bank, over & above the single borrower limit of $17.5 billion up to $ 21.8 billion.
The government said that the additional borrowing space would help it complete its planned infrastructure projects with the assistance of the International Bank for Reconstruction & Development (IBRD).
Economist Dharmakirti Joshi, from ratings agency Crisil, said, "This is a confidence-enhancing measure. Keeping all funding sources accessible at a time when government finances are tight is a good move."
Joshi added that the move would increase supply of dollars and help in alleviating funding constraints for large investment projects.
To fund the government's proposed huge investment; the Reserve Bank of India (RBI) will use the country's foreign exchange (forex) reserves, which stood at $275 billion at the end of August this year.