The construction industry is crucial to the national GDP as it contributes 8 per cent and is the second largest earner of FDI, besides directly employing over 33 million people. The ups and downs of the construction segment have direct bearings on a number of associated industries like cement, steel and technology. The domestic steel sector itself is worth of $100 billion. The issue of stalled projects and the recent initiatives by the government to break this deadlock should be seen as steps taken with right intention at the right time against this backdrop.

There are several crucial reasons from land scarcity to regulatory clearances for the present plight infrastructure sector in general and the construction segment in particular. But one of the biggest hurdles is the liquidity crunch precipitated by prolonged disputes and stressed assets. The number of stalled projects have been on the rise continuously. As many as 743 projects worth a cumulative investment of Rs 31 trillion came up to the Project Monitoring Group (PMG), set up by the government to revive the projects in 2013, as of February 2016. Majority of them are still stuck as stalled. So any move to unclog these projects before slipping as NPAs is highly rewarding in the larger interest of the country.

One of the key recommendations of the Dr Vijay Kelkar Committee was resolving the legacy issues. So the new move to simply the arbitration is commendable. The contractors will now be allowed to shift ?with consent? their pending disputes with public bodies to the new arbitration procedures. During the pendency of an arbitral award being challenged by the public body, 75 per cent of the amount would be released to contractor against a bank guarantee, as per the revised norm.

Even the banks have been pressing for such a move as this was one of the triggers for growing NPAs. With the money stuck with the government and cash flow cycle hit, there is no way out for the companies in EPC contracting or construction. Earlier, the money used to be released against a bank guarantee.

The government has also come out with a provision for a conciliation board consisting of independent domain expert who will enter into contractual negotiations if there are changes in commercial circumstances around the project. This is important because government will now bring independent sector experts on board, instead of taking a decision by the babus alone.

According to some calculations, an estimated amount of Rs 70,000 crore are stuck in arbitration and over 85 per cent of the claims are raised against public sector bodies. So, the biggest impact will be the liquidity boost in the system and stem the rot of companies.

The government decision is critical because any ambition of the country to grow at a brisker pace of 9 per cent is invariably related to the construction industry which has been becoming a highly stressed sector. Get it going means get India growing.

Secondly, the initiative has come at the right time as the recovery is still slow. Despite higher orders, the execution has not picked up. Many construction companies are facing stretched liquidity and limited resources to expedite execution resulting in weaker revenue growth. Following the government?s positive steps like Smart Cities project and housing for all by 2022, easing of the stalled projects should be welcomed as a natural corollary. Some segments like roads and urban infrastructure started showing better pace. Moreover, such positive move was inevitable if the government wants to make sure that construction industry also enjoys the benefits from the much-hyped GST regime.

One of the biggest beneficiaries of the recent steps will be the construction equipment industry which has the potential to make big strides to $21 billion in a few years from the current level of $3 billion. Despite the growth prospects and recent capex cycle in public sector, the industry has been plagued by many challenges, mainly those in the ecosystem of construction industry. If the EPF contractors are struggling through liquidity crisis and cannot buy the much-needed equipment, no amount of optimism and policy initiatives can help the equipment industry. It is but natural that the construction equipment industry also gets its share of attention from the government to overcome the challenges like delay in procedural clearances by the concerned agencies. The industry has passed through a grim phase in the last four years and has started showing signs of recovery. The measures to boost liquidity in construction sector hence assume significance for equipment industry too in a big way.

An estimated amount of Rs 70,000 crore are stuck in arbitration and over 85 per cent of the claims are raised against public sector bodies.

The author is Founder & Managing Director at Singhi Advisors.