Cabinet lays down ground to revive construction sector

India's infrastructure sector expanded by 5.2% on year-on-year basis in June this year.

In a bid to revive the stuck construction and real estate projects, the Cabinet today approved an array of measures to help quickly resolve disputes, pump in liquidity and deal with stressed assets.

The Cabinet, chaired by Prime Minister Narendra Modi, allowed contractors to move to the new speedier arbitration process, approved release of 75 per cent of the amount in dispute against bank guarantee and provided for a conciliation board comprising of independent domain experts in new contracts.

Union Finance Minister Arun Jaitley said the construction sector contributes 8 per cent of the GDP and provides employment to some 40 million people in the country.

“There are various challenges before the construction sector and the government has been trying to improve upon the functioning of the construction sector,” he said.

“We have simplified arbitration law so that the process of dispute redressal could be made easier. We have also allowed establishment of commercial court,” Jaitley added.

The Cabinet, he said, decided to give option for shifting of disputes between public bodies and contractors to new arbitration act from old arbitration act.

Also, during the pendency of an arbitral award being challenged by the public body, 75 per cent of the amount will be released to contractor against a bank guarantee.

The amount so released will have to be spent on discharging liabilities towards bank and financial institutions and any money left shall be used in the projects. This move will infuse the much needed liquidity in the sector, he said.

Jaitley said in new contracts, there will be a provision for a conciliation board consisting of independent domain expert who will enter into contractual negotiations if there are changes in commercial circumstances around the project.

Besides, item rate contract would be replaced by turnkey contract and a model draft turnkey contract will be circulated.

Department of Financial Services under Jaitley’s Ministry and the Reserve Bank of India will prepare a policy to “deal with those companies which have lot of stressed assets in the construction sector,” he said.

These measures will pump in liquidity as well as activate the stranded projects, he said.