INR 40,000 Crore Stimulus for the construction sector

Companies engaged in construction activity for the government have received a major relief from the NITI Aayog. The government think tank has recommended that at least 75% of the total sum due should be released.

This will help them clear their debt pile and also allow for additional spend to expedite existing infrastructure and related projects.  Earlier, the government had cleared the proposal to release the money for the construction sector. Now, NITI Aayog is working on its implementation.

According to Amitabh Kant, CEO, NITI Aayog, “Based on the instructions issued by the NITI Aayog, 75% of this amount, i.e., Rs 39,366 crore, is likely to be released to the contractors/concessionaires on furnishing the bank guarantees. These measures are expected to release a substantial amount of liquidity for the construction industry, help them meet their debt commitments.”

The construction industry is under strain due to huge liquidity problems and this effort by the government could well bring in more liquidity and ease of doing business especially in the scenarios of disputes being raised. Its contribution to the nation’s GDP is 8% and is a major employment generator.

In case of a dispute, it takes years for resolution to be reached which caused problems for construction firms as payments get stuck. There is also a process of appeals which further elongates its woes.  According to a report the total number of cases is 597. The total sum that is being disputed is INR 52,488 crores. A number of government public sector undertakings have gone to court to contest payment claims by construction firms. These include, NHPC, IOC, NTPC, NHAI etc.