On Road To Revival: Faster Dispute Redress Will Speed Up Construction  

Any slowdown in a sector that contributes eight per cent to a country's gross domestic product (GDP), employs as many as 40 million people and attracts the second-highest inflow of foreign direct investments (FDI), could be disastrous for the country's overall health. However, India's construction sector has been showing signs of stress in the past couple of years. According to government estimates, the banking sector has a large exposure to the sector, estimated at over Rs 3 lakh crore. On the other hand, 45 per cent of the bank loans in the sector are under stress. This stress is largely attributed to a great number of projects getting stalled during a slowdown that hit the real estate sector between 2011 and 2014, apart from the “pendency of claims from government bodies” that contractors face.

To help the sector jump back on its feet, the Prime Minister Narendra Modi-led Cabinet Committee on Economic Affairs (CCEA) has announced a slew of measure that would help infuse liquidity into the sector, resolve disputes faster and trim down the non-performing assets (NPAs).

Now, in case of a dispute between contractors and government bodies, the former will have the option to shift to the amended Arbitration Act. This would ensure speedier resolution of disputes. To speed up the pending cases, contractors and government bodies may set up a conciliation board of independent experts. 

In case a government body challenges the arbitration, it will also have to release of 75 per cent of the amount into the escrow account to contractors against a bank guarantee. This will help developers maintain funds to carry out projects while it will also ensure banks don't have significant exposure to the NPAs. The Department of Financial Services along with the Reserve Bank of India will also evolve a one-time scheme for addressing stressed bank loans in the construction sector.

According to Finance Minister Arun Jaitley, item-rate contracts (unit-based pricing) would be replaced by turnkey contracts (engineering, procurement and construction contracts), and a model policy will be prepared in this regard.

It has to be noted that the growth of the real estate sector largely depends on how well the construction sector performs. The measures, aimed to reform the contracting regime in the long run, would improve and speed up the way India is being built.