NEW DELHI: Construction contractors and concessionaires of government projects that are under dispute are set to get a 40,000 crore boost with the NITI Aayog pushing central public sector units to release 75% of the amount due to them to revive the sector.
Part of the money paid will be used to clear bank debt, which will also help reduce the stress on lenders struggling with bad loans.
The push follows the government’s decision on August 31 to release construction sector funds locked up in arbitration. NITI Aayog has written to ministries and departments to implement the decision. According to NITI Aayog’s assessment, 597 cases involving 52,488 crore spread across central public sector enterprises including National Highways Authority of India, NTPC, NHPC and Indian Oil Corporation are under arbitration or pending in court.
“Based on the instructions issued by the NITI Aayog, 75% of this amount, i.e., Rs 39,366 crore, is likely to be released to the contractors/concessionaires on furnishing the bank guarantees,” NITI Aayog CEO Amitabh Kant said.
Kant said the move would open the gateway for revival of the construction sector, which is the second-largest employment provider. “These measures are expected to release a substantial amount of liquidity for the construction industry, help them meet their debt obligations, help the banks in taking care of their NPAs (non-performing assets) and release of resources for completion of stalled projects,” he added.
The construction sector, which is one of the key contributors to economic activity accounting for about 8% of GDP, has been facing a number of problems, mainly arising from liquidity constraints caused on account of disputes raised by government agencies.
Although many such cases have been decided in favour of construction companies, payments are stuck because of appeals. On average, these cases take up to seven years to settle. Following approval by the Union Cabinet on NITI’s proposal to revive the construction sector, the Aayog had instructed ministries and PSUs concerned to use 75% of the award amount towards payment of lenders’ dues, completion of the project and then completion of other projects of the PSU/department.
As part of its recommendations to revive the construction sector, NITI Aayog also proposed that ministries/PSUs issuing public contracts should consider setting up conciliation committees and councils comprising of independent subject experts in order to ensure speedy disposal of cases.
“Conciliatory process, once put in place, would prove to be the best way forward for resolution of disputes between the agencies awarding the contracts and the contractors and expected to put an end to the time-consuming and expensive quasi-judicial processes of arbitration or judicial challenges,” Kant said.
Recourse to such conciliation may be open before, during or after the arbitration proceedings and a provision to this effect could also be made in future contracts as a mechanism for resolution of disputes, it proposed.
Credits ET Realty