The funds are approved to help the state significantly improve its delivery of water and sanitation services as well as reduce open defecation to improve the quality of life in rural Punjab.
Out of total Rs 2,200 crore project, the World Bank would contribute Rs 1,540 crore as loan and the state government Rs 660 crore in the ratio of its share 70:30, said an official release.
The project would aim for a water connection and a toilet for every rural household by end of the project period, which would be a first for any state in India.
The project will help the government's water department to reorganise and focus on service delivery.
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The project is expected to directly benefit an estimated 8.47 million rural people in Punjab, including over 4 million female beneficiaries and 2.44 million beneficiaries belonging to the scheduled castes.
A large number of water supply schemes are serving only a limited population with house connections. The rapidly deteriorating water quality in the state is also leading to serious health problems.
"Over four million women in Punjab, who today bear the burden of securing daily water supplies and deal with poor sanitation facilities, will benefit from this project. They will have access to more reliable and better quality water supply and sanitation facilities in their own households," said Onno Ruhl, World Bank Country Director for India.
Today, the quality of water in Punjab is among the worst when compared to other Indian states. Of the 9,096 schemes tested, 1,717 failed due to the presence of uranium and other heavy metals, and 891 do not meet basic parameters, release said.