Hit by lockdown, construction industry seeks immediate release of pending dues from govt agencies

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Updated: May 24, 2020 7:43 PM

Finance minister Nirmala Sitharaman recently announced a stimulus package of Rs 20 lakh crore, or 10 per cent of the GDP, in five tranches to give a boost to the economy which will be in the negative territory for the current fiscal.

Funding of construction projects will be instrumental in helping revive the economy as infrastructure investment has the highest GDP multiplier factor, almost 2.0x, and our industry is among the largest employment generators impacting seven crore households. Funding of construction projects will be instrumental in helping revive the economy as infrastructure investment has the highest GDP multiplier factor, almost 2.0x, and our industry is among the largest employment generators impacting seven crore households. (Representative image)

As the ongoing lockdown has severely impacted infrastructure activities across the country, liquidity starved engineering and construction industry is seeking immediate release of long pending dues from the central and state government agencies.

According to industry players, release of these dues, most of which are stuck in arbitration and run into thousands of crores of rupees, would bring in immediate liquidity in the current COVID crisis scenario, rather than the Rs 20 lakh crore economic stimulus package announced recently.

Finance minister Nirmala Sitharaman recently announced a stimulus package of Rs 20 lakh crore, or 10 per cent of the GDP, in five tranches to give a boost to the economy which will be in the negative territory for the current fiscal.

“Funding of construction projects will be instrumental in helping revive the economy as infrastructure investment has the highest GDP multiplier factor, almost 2.0x, and our industry is among the largest employment generators impacting seven crore households. Risk aversion by financial institutions to infrastructure was prevalent pre-COVID, and has now worsened,” HCC Director and Group CEO Arjun Dhawan told PTI.

He further said that contract enforcement and timely dispute resolution is the bedrock of free enterprise and while we all hope for swifter conciliation or court proceedings, an immediate solution is the unqualified payment of arbitration dues without repeated challenge in courts or the onerous requirement of bank guarantees.

“This immediate liquidity will repay lenders, unlock supply chains, protect thousands of MSMEs including migrant labour while restarting the profit cycle that will trigger our economic revival,” he added.

National Highways Authority of India (NHAI) alone has at least 180 cases in arbitration involving a sum of about Rs 80,000 crore. The agency has been holding dialogues (with contractors and industry players) to find resolution to disputes through reconciliation.

Meanwhile, the Reserve Bank of India has also slashed the repo rate by 40 basis points in eighth straight cut and also allowed lenders to extend an ongoing moratorium on loan repayment, which was due to end on May 31, by another three months till August 31, a move intended at easing liquidity pressure.

“These initiatives will boost liquidity subsequently as the clients or customers can avail credit, but eventually it would be spent on project execution. The policy announced relaxation in time limits for infra projects, but is silent on who would bear the cost implications of lockdown. Once lockdown ends, we expect more clarity and that would put to rest this debate,” Tata Projects Chief Strategy Officer Himanshu Chaturvedi said.

Echoing similar views, global professional services firm Alvarez & Marsal Managing Director Venkataraman Renganathan opined that the stimulus package is a step in the right direction and is intended to infuse liquidity into the system, however, it is a credit line.

“In a way, the stimulus package will get in the liquidity for projects which have been stranded for money. However, we need to understand that this is a credit line and not a bailout package. So, the contractors will have to repay the money.

“The issue of non-settlement of dues by the authorities has been there in the pre-COVID period. However, in the current scenario, the money which they owe to the contractors, if paid, will provide the much needed liquidity to them,” he added.

Another industry expert, who did not wish to be named said, “while lending, banks will lend only to those players whose credit scores are good. However, companies which are already under stress due to various reasons, will not get the credit. Many of these players have thousands of crores of rupees pending under arbitration with the government agencies or yet to be paid”.

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