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India mulls bond buy for $4.3 bln World Bank loans

By Nigam Prusty

NEW DELHI (Reuters) - The union cabinet will on Thursday consider a finance ministry proposal to allow the country to borrow an additional $4.3 billion from the World Bank by investing in special bonds, in effect leveraging its foreign exchange reserves.

Under the proposal India would gain additional borrowing rights from the International Bank of Reconstruction and Development (IBRD), a World Bank subsidiary that lends to middle income countries, according to the note seen by Reuters on Wednesday, which did not give details.

The arrangement allows India to circumvent the $17.5 billion limit it has with the IBRD, giving it access to more development financing at a time the country is hungry for capital inflows to stabilize the volatile rupee.

Senior finance ministry official Arvind Mayaram said the idea was for the Reserve Bank of India to invest in bonds issued by the World Bank. In return it could borrow the same amount.

"By subscribing to these bonds, India would be able to leverage this to get a larger sum of money as a loan for investing in infrastructure," Mayaram told reporters.

The mechanism was approved last year by the World Bank and is part of efforts to soften the blow for India as it becomes a middle-income country. A similar arrangement was previously agreed upon for China as it moved up the income ladder.

Middle income status, based on higher per-capita income, means that India, which is home to a third of the world's poor, should have less access to development loans and must pay back outstanding debt with the World Bank more quickly.

(Writing by Frank Jack Daniel; Additional reporting by Manoj Kumar and Rajesh Kumar Singh; Editing by Toby Chopra)