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Cabinet clears clutch of moves to revive construction sector
NEW DELHI: In a move that will unlock thousands of crores and infuse liquidity into the stressed construction sector, the Cabinet on Wednesday asked government agencies
NEW DELHI: In a move that will unlock thousands of crores and infuse liquidity into the stressed construction sector, the Cabinet on Wednesday asked government agencies and public bodies to pay 75% of the money to contractors in cases of any dispute. This amount can be used to complete projects or pay off debts.
So, in case of a dispute between the Delhi Development Authority (DDA) or the National Highways Authority of India (NHAI) and the concessionaire, where the case has gone to an arbitration tribunal and the former has challenged the arbitral award, the DDA or the NHAI will have to award 75% of the amount to the concessionaire against a bank guarantee.
Shares of construction and infrastructure firms gained on the BSE following the Cabinet’s decision. Hindustan Construction Co (HCC) jumped 19.83%, followed by Punj Lloyd (up 11.57%), GVK Power Infra (up 6.92%), Jaiprakash Associates (3.46%), Larsen & Toubro (up 2.71%) and GMR Infrastructure (up 2.48%).
An estimated ₹70,000 crore is currently tied up in arbitration. Over 85% of the claims raised against public bodies are still pending, of which 11% is pending with government agencies, 64% with arbitrators and 8.5% with courts. The average settlement time for claims currently exceeds seven years.
HCC has around ₹3,200 crore in pending claims, MD Ajit Gulabchand said. “We will now get ₹2,400 crore from that pending amount. An additional ₹5,000 crore is also under arbitration, which will now be fast-tracked.”
The “revival package for the construction sector by the government will translate into a huge liquidity boost for the system and would save many construction companies from being declared NPAs,” said Chandrajit Banerjee, director-general, CII.
The Cabinet also decided that whenever there are disputes pending between public bodies and construction contractors under the old arbitration Act, there will be an option to shift them to the new procedure, which is cheaper and faster.
Besides, the government has also asked the Department of Financial Services and the RBI to come up with a one-time scheme for addressing stressed assets in the construction sector.
“There are various challenges before the construction sector and the government has been trying over the last year to improve its functioning. We had simplified the arbitration law... so that the process of dispute redressal can be made easier,” finance minister Arun Jaitley told reporters after the Cabinet meeting.
The construction sector accounts for 8% of the GDP and provides employment to around 40 million people in the country.
Jaitley said the banking sector’s current exposure to the construction sector is over ₹3 lakh crore, and 45%, or ₹1.35 lakh crore, of loans are under stress.
