• India to buy IBRD bonds worth $4.3 billion
• Borrowing limit from
World Bank will go up $4.3 billion to $21.8 billion
• Bond subscription will
ensure more soft loans for development projects
• Besides, bonds will fetch a return
New Delhi, Sept. 12: The Union cabinet today approved the buying of special bonds worth $4.3 billion from the International Bank for Reconstruction and Development (IBRD), a move that will raise India’s borrowing limit beyond $17.5 billion.
Last year, India and the IBRD — a World Bank arm — had worked out a mechanism that would allow the country to get more soft loans for development projects if it purchased special private placement bonds from the World Bank arm.
“Total lending by the World Bank is coming down. By subscribing to these bonds, India will be able the leverage this to get larger sums of money as loans for investment in infrastructure projects,” Manish Tiwari, minister for information and broadcasting, told reporters after the cabinet meeting.
India has already borrowed to its limit, which stands reduced after the World Bank categorised it as a middle-income country instead of a less-developed country. This arrangement, which allows India to buy second-tier capital in IBRD to allow it a bigger loan window, was worked out to “soften” India’s upgrade, officials said.
The Reserve Bank will invest on behalf of the country in the special bonds, which being quasi-equity, would earn a return.
A similar arrangement was earlier worked out with China as it moved up the income ladder. India was classified as a middle-income status country by the World Bank based on higher per-capita income. The status implies that India will have lower access to low-interest development loans.
“The Union cabinet today gave its approval for entering into a special private placement bonds arrangement with the IBRD, enabling India to have additional borrowing space of $4.3 billion above the single borrower limit,” an official release said.
“The IBRD will be able to lend to India $4.3 billion above the single borrower limit (SLB) of $17.5 billion, i.e. up to $21.8 billion.”
Officials said fresh loans from the IBRD would be mostly for development projects in in low income and special category states and for “projects aimed at fostering inclusive growth”.
The release said that New Delhi would also be able to access World Bank’s expertise for the projects.
The cabinet today approved a proposal to infuse fresh capital of Rs 700 crore into the Export-Import Bank of India (Exim Bank) during 2013-14, according to a decision taken in this year’s budget.
The infusion of capital in Exim Bank will ensure compliance to the regulatory norms on capital adequacy.
The cabinet also decided to infuse Rs 400 crore into India Infrastructure Finance Company Ltd (IIFCL).
This “will help IIFCL in funding viable infrastructure projects through long-term debt, takeout finance and credit enhancement,” officials said.