Govt clears steps to revive construction, real estate sectors

The proposal is mooted by Niti Aayog

In a move to get stalled construction projects moving, the Union Cabinet on Wednesday approved new arbitration norms that will help in quicker resolutions for companies.

Under the proposal put forward by Niti Aayog and approved by the CCEA, government agencies would pay 75% of the arbitral award amount to an escrow account against margin-free bank guarantee, in those cases where the award is challenged.

The escrow account can be used to repay bank loans or to meet commitments in ongoing projects. This is a major step which will allow recovery of loans by banks and allow construction companies to speed up execution of ongoing projects.

It will also increase the ability of construction companies to bid for new contracts and the resulting competition will be beneficial in containing the costs of public works. This measure will provide a stimulus to the construction industry and to employment.

“These initiatives are expected to help in improving the liquidity in the short-run and reform the contracting regime in the long-run. Given the significant multiplier effect, the construction sector has on the economy, these measures are expected to give a major boost to economic growth. As the sector provides the largest segment of direct and indirect employment, its revival would also help in significant employment generation,” an official statement said after the Cabinet meeting.

An official statement said that a key factor behind the difficulties facing the construction sector is the pendency of claims from government bodies.

An estimated Rs 70,000 crore is tied up in arbitration. Over 85% of the claims raised against government bodies are still pending, of which 11% is pending with the government agencies, 64% with arbitrators and 8.5% with courts.

The contractors have also been allowed to shift “with consent” their pending disputes with public bodies to the new arbitration procedures, from the old arbitration act. This will ensure a “cheaper and a quicker fast track” arbitral process, Jaitley said.