Cabinet gives clearance to revive the construction sector


Over the last few years, the real estate sector is not progressing at the level it was expected. Apart from general economic scenario and recession, there are other contributing factors which impede the growth of the real estate sector. Some of these factors are concerning redressal of grievances, available of assured cash flow and stressed assets.

Concerned with difficult situation being faced by the construction and real estate projects, the Central Governments under the Chairmanship of PM Shri Narendra Modi formulated the following strategies:

  1. The contractors were permitted to approach the new speedier arbitration project
  2. Approval of the release of 75 percent of the disputed amount against proper bank guarantee and
  3. Setting up of a Conciliation Board to be formed with independent domain experts in new contract.

Finance Minister, Arun Jaitley highlighted the importance and contribution o f the construction sector towards National GDP as also creating avenues for employment for about 40 million people in our country. He also stated that the government is concerned with the challenges being faced by the real estate sector and is trying its best to improve the functioning of this important sector. Having this end in view, an arbitration procedure has been simplified to facilitate easier disposal redressal of the grievances. The setting up of a commercial court will also be an important step in this direction.

The Finance Minister outlined the following steps to aid the construction sector:

  1. There will be options for transferring of disputes between public bodies and contractors to new arbitration act from the old act.
  2. During the pendency of the arbitration process, the contractors will be allowed to get hold of 75 percent of the amount in question against proper bank guarantee. However, this amount is required to be incurred towards discharging liabilities for the bank and financial institution; the balance amount could be used in the projects under construction. This release of funds will bring in the required liquidity in the real estate sector.
  3. So far as new contracts are concerned it has been mandated to include a provision for a conciliation board to be drawn from a competent neutral domain expert. The Board will be empowered to deal with contractual negotiation in case there is alteration in commercial circumstances concerning the projects.

Another feature would be the replacement of turnkey contract from existing rate contract. A draft turnkey contract will be circulated to all concerned before finalisation.

As regards, dealing with the companies having considerably stressed assets in the construction sector, the department of financial services of the Ministry of Finance and reserve Bank of India will prepare a policy guideline shortly. The finance minister was optimistic that the above measures will result in bringing pump in liquidity and eventually activate the stalled projects.

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