Cabinet Committee on Economic Affairs approves initiatives to revive construction sector

Cabinet Committee on Ecomic Affairs (CCEA), on Wednesday, approved certain measures pertaining to construction sector and ted that government entities will take decision to initiate proceedings for setting aside of arbitral award, and any related appeal with opinion of a law officer such as Attorney-General for India, Solicitor-General for India, ditional Solicitor-General for India in consultation with Department of Legal Affairs.

'Measures were approved for effective implementation'

While talking about same to media, Union Finance Minister Nirmala Sitharaman said that measures were approved for effective implementation of CCEA's decision of August 31 on 'Initiatives to revive Construction Sector'. She also said that proposals put forward by NITI Aayog with respect to arbitrations by or against government entities were approved.

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Sitharaman, while furr talking about issue, said that a government entity has challenged an arbitral award, resultant of which amount of arbitral award has t been paid, 75 per cent of such award will be paid by government entity to contractor or concessionaire against a bank guarantee only "for said 75 per cent and t for its interest component".

With respect to interest payable to government entity, should subsequent court order require a refund of said 75 per cent, payment of same will be as per court order, she said. According to Finance Minister, order is applicable to government entities i.e. all Public Sector Undertakings (PSUs) of central government, automous organisations of central government, Special Purpose Vehicles (SPV) where 50 per cent (fifty per cent) or more of paid-up share capital is held by Central Government and all Central Government departments.

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An official release mentioned that approved measures would help in ensuring that remedies of challenge and appeal are resorted in a prudent and judicious manner and in furring objective of infusion of liquidity into construction sector.

"Given significant multiplier effect, construction sector has on ecomy, se are expected to give a major boost to ecomic growth. And as sector that provides one of largest segments of direct and indirect employment, its revival would also help in significant employment generation," release said.

release also said over last few years, an increasing number of infrastructure projects in construction sector has been subject to prolonged legal proceedings. "In a substantial number of se projects which go into arbitration, payment of award is t released to contractor for award is challenged in court. Challenge of award, in most cases, defers payment of arbitral award pending decision in appeal, which process n takes years to attain finality," release said.

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"This is seen to cause severe liquidity constraints in construction sector as large sums of money raised by concessionaires, for execution of projects, get blocked stressing ir balance sheets," it ded. In dition to that, it also mentioned that it causes a ripple effect throughout financial ecosystem - directly impacting repayment of debt to lenders, leing to increasing n-Performing Assets (NPAs) in ir balance sheets.

To dress above, CCEA h, pursuant to a proposal put forward by NITI Aayog, in 2016, approved various short-term and long-term measures including for government entities to pay 75 per cent of award to contractor/concessionaire against a Bank Guarantee.

However, this policy decision of interim payment of 75 per cent has been falling short of its intended objective of infusion of liquidity into construction sector on account of insistence on bank guarantee for interest component, should subsequent court order require refund of amount paid by government entity. As a result of which, contractors and concessionaires continue to be marred by financial stress, ultimately affecting entire commercial ecosystem and broer ecomy, release said.

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