New payment mechanism of railways: 30 days max, else govt will pay interest

The step is expected to eliminate the "biggest risk" faced by contractors, meaning that railways will ensure that payments are made within the stipulated time, said the railway minister at an event

The railways have prepared a new mechanism to release payments to private contractors within 30 days, according to Union minister Ashwini Vaishnaw. The step is expected to eliminate the "biggest risk" faced by contractors, meaning that railways will ensure that payments are made within the stipulated time, said the minister, as reported by The Times of India (TOI). Furthermore, the minister added that if payments are not cleared within 30 days, railways will pay interest on the amount.

Minister Ashwini was speaking at the CII Partnership Summit, informing the audience that PM Narendra Modi had asked the railways to eliminate the biggest risk that government contractors face.

Speaking at the event, the minister added, "Today, in most of the railway contracts, if the payment is not done within 30 days of the invoice, the government will pay the interest to you. Can you believe that? That has started happening. The psychological impact it has on people who are managing the contract is that if I have to pay the interest, then my job is gone. So instead of contractors running after the government officers, now it's the reverse and all payments are digital."

Government officials aware of the development said that the government would emulate this arrangement for all other government departments as well. The report added that in the case of the highway ministry, the provision of payment has been in place for years. Their contract provisions specify that in case of delayed payments, an interest rate of 3 per cent more than the bank rate should be paid to the contractors.

In his previous statements, Minister Vaishnaw said that the government had placed the railway projects under special focus since 2014, and the steps taken so far are now yielding dividends.