Cabinet approves Initiatives to revive the Construction Sector

The Cabinet Committee on Economic Affairs, chaired by the Prime Minister Shri Narendra Modi approved various measures to revive the construction sector which has been undergoing stress.

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.

Government Departments and PSUs have also been instructed to transfer cases under arbitration to the amended Arbitration Act which has an expedited procedure, with the consent of the contractors. In the long run, other measures are also under consideration, including changes to bid documents and model contracts, and increased use of conciliation. NITI will also examine the idea of creating "claim take out funds" financed by private sector investors, while the Department of Financial Services will examine a suitable scheme for addressing stressed bank loans in the construction sector.

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