Forex reserves may be used to secure World Bank loans

The government might dip into its foreign exchange reserves to continue getting loans from the World Bank beyond 2014-15. The Cabinet is expected to discuss a proposal to this effect on Thursday. For this, India will have to subscribe to a $4.3-billion special bond issued by the multilateral development bank. Senior officials said this would allow India to get an equal amount of loan from the World Bank.

Taking the country's net borrowing limit to $21.8 billion, against $17.5 billion at present.

The World Bank will issue special placement bonds to the Reserve Bank of India (RBI). An additional funding of $4.3 billion will be provided by the World Bank in the lieu of these bonds, officials said.

At the end of June 2011, the World Bank's outstanding exposure to India had reached $11.4 billion. The limit is likely to be breached in 2014-15 if loan volume goes up. World Bank's long-term loans come at a very low rate and any disruption in funding may affect some crucial projects.

Officials conceded that concerns were raised by some sections against using forex reserves for taking loans from the World Bank. India's forex reserves fell over three-year low to $275.49 billion in the week ended 30 August.

India, the largest borrower of the Bank, needs an investment of $1 trillion in the infrastructure in the 12th five year plan (2012-13 to 2016-17). World Bank loans are available at concessional rates of as low as 0.75 per cent. As of March 2012, total net commitments towards India stood at $23.4 billion across 75 projects in infrastructure, agriculture, education, health and environment.

Officials said some other proposals relating to providing capital funds to India Infrastructure Finance Co Ltd (IIFCL) and Export -Import Bank Of India (EXIM) to enable liberal financing to Indian companies looking for ventures abroad is also expected to be come up for discussion in the Cabinet.