Answer:
♤ The construction industry is a major contributor towards India’s GDP, both directly and indirectly. It employs 33 million people, and any improvements in the construction sector affect a number of associated industries such as cement, steel, technology, skill-enhancement, etc.
♤ It has major forward and backward linkages, and therefore a high multiplier effect on economic growth (almost two times).
♤ But, this sector is under stress, indicated by:
o Increasing levels of debt which affect financial stability
o A large number of stalled projects
o A slowdown in construction sector leading to stretched liquidity and limited resources
o The construction sector is reeling under a severe shortage of skilled workforce, and in many areas of the country, shortage of construction sand, raw materials, and political disturbances are also acting as growth deterrents.
o Pending claims from government bodies causing huge debt of construction companies. Over 85% claims raised are still pending
o The prolonged real estate market slowdown has resulted in a lot of unsold housing projects across India.
♤ The government has been striving to revive the sector through steps like:
o Increased impetus to the creation of affordable housing mission (Housing for All by 2022), along with quicker approvals and other supportive policy changes will soon result in an increase in construction activity.
o Granted infrastructure status to affordable housing that will provide a boost in volume of construction activity. Norms for FDI in 15 sectors including real estate and construction development have now been eased, and this has very positive implications for these sectors and the larger economy.
o The introduction of GST will ease tax-related complexities in the construction sector and bring with it a major spurt in activity and growth.
♤ Dispute Settlement:
o PSUs/Departments may seek the consent of the contractors/ concessionaires to transfer the arbitration cases initiated under the pre-amended Arbitration Act to the amended Arbitration Act, wherever possible.
o In those cases where the award is challenged, the government agencies would pay 75% of the arbitral award amount to an escrow account against margin free bank guarantee. This will help in recovery of loans by banks and increase the speed of projects. This will allow the companies to bid for new projects, thus resulting in competition.
o PSUs/Departments may adopt the Model EPC contracts for construction works.
o Department of Financial Services, in consultation with Reserve Bank of India, may evolve a suitable one-time scheme for addressing stressed bank loans in the construction sector.