India set to buy bonds of World Bank arm.

NEW DELHI: The government has worked out a mechanism with the World Bank to enhance the credit from the multilateral lender to India, which is looking for stable sources of fund meet its high current account deficit (CAD).

Under the arrangement, the RBI will subscribe to special private placement of bonds by the International Bank for Reconstruction and Development. This will make the country eligible for higher borrowing from the World Bank. The cabinet will on Thursday consider a proposal to allow the RBI to subscribe to $4.3 billion IBRD bonds.

"This will enable us to raise more funds for infrastructure projects from the World Bank," a finance ministry official said. With India's rising income levels, the World Bank, which lends to poorer countries, is finding it difficult to enhance its funding support to India, which is reflected in the decline in India's multilateral debt.

The share of multilateral debt, which is usually at concessional rates and of long tenure, fell to 13.2% at the end of March 2013 from over 20% at the end of March 2007.

IBRD is structured like a cooperative, owned and operated for the benefit of its members. Currently, 188 countries are its members.

Other cabinet proposals

The union cabinet will also take up a proposal to infuse Rs 400 crore in IIFCL, and Rs 700 crore in Exim Bank, which will help bolster lending capacity of these institutions.

The capital infusion will allow dedicated infra financier IIFCL to provide long-term infrastructure finance while Exim Bank will be able to provide higher credit supports to Indian exporters, helping them secure bigger orders.

Cabinet will take up a proposal for setting up two semiconductor manufacturing facilities to reduce import of this material needed to make chips that go into electronic goods. The total investment in these two facilities is estimated at Rs 25,000 crore.

The government will provide support to these units in consultation with the chip makers shortlisted to set up these facilities. The cabinet committee on economic affairs (CCEA) will consider a proposal of 10% export duty on cotton to ensure this raw material is available to the domestic industry.

The duty is proposed to be levied on ad valorem basis and is capped at a maximum of Rs 10,000 tonne. The textiles ministry has proposed a comprehensive 'Cotton Distribution Policy' for the fibre to ensure that interest of all stakeholders - farmers, fibre, cloth and textiles - are protected. And for the sake of transparency, the ministry has said that the Cotton Advisory Board will every September release an estimate of exportable surplus.

The CCEA is also likely to consider tomorrow a proposal to allocate an additional 5 million tonnes of foodgrains to families below the poverty line (BPL).

Source : economictimes.indiatimes.com