The Cabinet Committee on Economic Affairs, chaired by the Prime Minister Narendra Modi, on Wednesday, approved various measures to revive the construction sector which has been under stress. Under the proposal put forward by NITI Aayog and approved by the CCEA, the government agencies would pay 75% of the arbitral award amount to an escrow account against margin free bank guarantee, in those cases where the award is challenged. The department of financial services on consultation with the Reserve Bank of India (RBI) has also been asked to evolve a suitable one-time scheme for addressing stressed bank loans in the construction sector.
The escrow account can be used to repay bank loans or to meet commitments in ongoing projects. Senior government officials described it as a major step which will allow the recovery of loans by banks and allow construction companies to speed up execution of ongoing projects. It will also increase the ability of construction companies to bid for new contracts and the resulting competition will be beneficial in containing the costs of public works. This measure will provide a stimulus to the construction industry and to employment.