Govt clears steps to revive construction, real estate

Seeking to revive construction and real estate sectors, the Cabinet today approved an array of measures including easing of rules for quicker settlement of disputes, pump in liquidity and reinvigorate stalled projects.
It allowed transfer of cases initiated under the old Arbitration Act to the new and expeditious dispute resolution law, 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.
Also, Department of Financial Services in the Finance Ministry and the Reserve Bank of India (RBI) will consider giving one-time scheme for stressed bank loans in the sector.

Briefing reporters after the meeting of the Cabinet, Finance Minister Arun Jaitley said the construction sector accounts for 8 per cent of the GDP and provides employment to some 40 million people in the country.
The banking sector's exposure to the construction sector currently stand at over Rs 3 lakh crore, and 45 per cent or Rs Rs 1.35 lakh crore of the loans are under stress.
"We hope that a series of these decisions will pump in a lot of liquidity into the sector, activate real estate and infrastructure projects which have been stranded for sometime and support the entire process of dispute resolution in relation to construction and real estate," Jaitley said.

An official statement said that a key factor behind the difficulties facing the construction sector is the pendency of claims from Government bodies.

An estimated Rs 70,000 crore is tied up in arbitration. Over 85 per cent of the claims raised against government bodies are still pending of which 11 per cent is pending with the government agencies, 64 per cent with arbitrators and 8.5 per cent with courts.
The contractors have also been allowed to shift "with consent" their pending disputes with public bodies to the new arbitration procedures, from the old arbitration act.
This will ensure a "cheaper and a quicker fast track" arbitral process, Jaitley said.

Where arbitral awards have been made and public bodies are challenging them, in those cases against a margin-free bank guarantee being given by the contractor, 75 per cent of the arbitration amount will have to be released to the contractor.
This 75 per cent of the amount will have to be spent by the contractor in completing the project and in discharging the bank and financial institutions dues. The surplus can be spent on further expansion of his projects.
"There are various challenges before the construction sector and the government has been trying over the last year to improve upon the functioning of construction sector. We had simplified the arbitration law...So that the process of dispute redressal can be made easier," Jaitley said as he outlined the five decisions taken by the Cabinet.

He said the policy RBI and Department of Financial Services will work out will seek to de-stress the asset of real estate sector.
"I believe that if real estate companies get 75 per cent of the awarded amount, then it will pump in a lot of liquidity. Over and above this if some steps are possible, DFS and RBI will work on that," he said.
The Cabinet has also approved that in all new contracts, there will be a provision for conciliation board, which will comprise of independent subject experts.
"This is being done for a reason that when commercial circumstances change and public servants are reluctant to participate in the renegotiations, there will be a contractual mechanism under which those terms could be renegotiated without bringing projects to be standstill," Jaitley said.

Besides, in contracts which are entered into by public authorities and public bodies, the 'item rate contracts' would be replaced by a 'Turn key contract' and a model draft 'Turn key contract proposal' will be circulated, he said.
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The official statement said a majority of arbitration awards have gone against the government agencies. In the case of NHAI, out of a total of 347 arbitral awards, 38 went in favour of the authority and 309 went in favour of the contractor/concessionaire.
"Of late, the construction sector has been several challenges leading to decline in the overall investments and growth," it said, adding that the issues ailing the sector was discussed with the representatives of construction companies, banks, NHAI, concerned ministries.

"Based on detailed discussions, larger economic importance and multi-sectoral nature of the issues, NITI Aayog put forward the proposal to Cabinet to suggest various initiatives required for addressing the issues ailing the construction industry," the statement said.
Talking to reporters, NITI Aayog CEO Amitabh Kant said the series of measures that have been taken will ensure liquidity in the sector.
"The objective is to keep the activity going and also to reduce the debt burden of the companies. We want to ensure that companies don't suffer, debt component reduces and economic activity in on track," Kant said.
He said shifting of old disputes to new arbitration law will speed up cases in arbitration. "The important thing is to see when disputes arise we should have a quick fast settlement and see that economic activity continues to happen on time," Kant said.