The decision to allow Reserve Bank to enter into a special private placement bond agreement with the International Bank for Reconstruction and Development (IBRD) was approved by the Union Cabinet, headed by Prime Minister Manmohan Singh.
The additional borrowing space would enable government of India to commit new projects with the World Bank assistance, an official statement said.
"The proposal will enable leveraging World Bank's knowledge base and global reach for transfer of knowledge, adoption of good practices, reforms of processes and systems and capacity building," it added.
Currently the limit for a single borrower of the World Bank is $17.5 billion and the government, the statement said, gives preference to projects in low income and special category States, as well as to projects aimed at fostering inclusive growth.
The bonds would be of various tenures and the RBI would get return on investment in the instruments.
India's headroom for borrowing from the World Bank is reaching the limit and investing in these bonds will widen the scope for more loans, a Finance Ministry official had earlier said.