In an effort to revive the construction sector in the country, the cabinet chaired by prime minister Narendra Modi, has allowed contractors to move to a new, speedier arbitration process, approved the release of 75% of the amount in dispute against bank guarantee and provided for a conciliation board comprising of independent domain experts in new contracts.
Finance minister Arun Jaitley said the construction sector contributes 8% 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 its functioning. We have simplified the arbitration law, so that the process of dispute redressal becomes easier. We have also allowed establishment of commercial courts,” Jaitley said.
The cabinet, he said, decided to provide the option, for the shifting of disputes between public bodies and contractors to the new arbitration act from the old arbitration act.
Also, during the pendency of an arbitral award being challenged by the public body, 75% of the amount will be released to the 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 much needed liquidity in the sector, he said.
Jaitley added that in new contracts, there will be a provision for a conciliation board, consisting of independent domain experts who will enter into contractual negotiations, if there are changes in the commercial circumstances around the project. Besides, item rate contracts will be replaced by turnkey contracts and a model draft turnkey contract will be circulated.
The Department of Financial Services under Jaitley’s ministry and the Reserve Bank of India, will prepare a policy to “Deal with companies that have a lot of stressed assets in the construction sector,” he said. These measures will pump in liquidity, as well as activate stranded projects, he said.