In a bid to boost the economy and revive the construction sector in the country, the Narendra Modi government has directed all ministries and departments to expedite pending payments to contractors and construction companies. The objective is to infuse liquidity in the market and create more job opportunities.
Over the last few years, an increasing number of multi-crore infrastructure and construction projects got entangled in legal issues and court proceedings, virtually blocking the growth of India's most promising business sector. Hitherto, the construction sector was providing one of the largest segments of direct and indirect employment across the country.
Prime Minister Narendra Modi had instructed NITI Aayog in 2016 to find a breakthrough in this direction and later the Cabinet Committee on Economic Affairs (CCEA) approved various measures to infuse liquidity in the construction sector. Yet certain legal hassles remained.
Recently in a letter (dated November 28, 2019) the Project Management and Appraisal Division (PAMD) of Niti Aayog instructed the Union Law Ministry and the departments concerned to ensure that contractors are paid 75 per cent of arbitral awards against bank guarantee. "The CCEA has considered proposal of NITI Aayog (on November 20) and has approved that 75 per cent of such payments will be paid by the government entities to contractors against a bank guarantee and not for its interest component," says the confidential letter addressed to Cabinet Secretary, Law Ministry and other departments concerned.
The letter further reveals that the Attorney General of India in consultation with the department of legal affairs will ensure that the process of providing legal opinion to Government entities relating to payments will be completed within 30 days. In simpler words, the PMO wants that payments should not be subject to any further legal hindrances, and should be released on a priority basis to infuse liquidity in the construction sector as soon as possible.
The letter of PAMD says that all concerned ministries "shall issue instructions to respective government entities for taking necessary action on the issue expeditiously".
The instructions have to be given, says the letter, to "all Public Sector Undertakings of Central government, all autonomous organisations of Centre and companies wherein paid-up share capital of Central government is more than fifty per cent." Sources in the NITI Aayog said that primary objective of the government is to release payment to contractors in a bid to revive the entire construction sector and ultimately boost the commercial ecosystem of the country which seems to be slowing down.