NEW DELHI India's cabinet on Wednesday approved a 340 billion rupee ($7.4 billion) proposal to connect 140,000 rural areas with all-weather roads, including habitations in hilly and desert terrain.

The first phase of the scheme will be implemented over the next three years in all rural areas with more than 1,000 people, and the second phase will cover rural habitations of 500 people by 2007.

Parliamentary Affairs Minister Pramod Mahajan told AFP that the cabinet had also cleared a proposal to upgrade the existing rural road network at a cost of 240 billion rupees.

Nearly 40 percent of Indian villages are still not connected by all-weather roads.

Mahajan said the funds for the program would come from a levy on diesel, as well as borrowings from the World Bank and the Asian Development Bank.