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UPDATE 2-India to fund major gas pipeline to boost eastern states

(Adds milestone, quote)

By Nidhi Verma

NEW DELHI, Sept 21 India's government will partly fund a $2 billion gas pipeline project linking five eastern states to help kick-start economic growth in a region that has trailed the rest of the country, the oil minister said on Wednesday.

The 2,500-km pipeline is to be built by state-run GAIL (India) Ltd, and this will be the first time the government has offered finance for such a project as part of Prime Minister Narendra Modi's plan for more balanced development.

Oil Minister Dharmendra Pradhan said the government will meet 40 percent of the cost of the pipeline that will run through the states of Uttar Pradesh, Bihar, Jharkhand, West Bengal and Odisha, which together account for nearly 40 percent of India's 1.3 billion population.

It will be the biggest pipeline project in the country and had won government approval in 2007 but could not move forward.

"This will be the first time that government spending will be made for pipeline infrastructure. This will help in achieving the prime minister's vision of the economic development of the eastern states," Pradhan told reporters after a cabinet meeting.

"The prime minister wants energy justice for all," he said.

India's economic development has been concentrated in the western and southern states, where there is better infrastructure and more accessible energy supplies. These states get piped gas supplies for household and transportation.

Pradhan said the government was hoping the new pipeline would help attract investment in the agro processing industry in the eastern region. The government has already removed the cap on foreign direct investment in the sector.

The new pipeline will also help in efforts to revive three fertilizer plants, which Modi's campaign had promised to do in his 2014 election run.

India's gas demand is expected to go up by as much as 10 million cubic meters a day once the pipeline is completed in a little more than two years.

Natural gas accounts for about 6.5 percent of India's overall energy needs, far lower than the global average. India plans to raise the share of gas in its energy mix to 15 percent over the next three years. (Reporting by Nidhi Verma; Editing by Sanjeev Miglani and Tom Hogue)

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