Following proposals put forward by NITI Aayog with respect to the arbitrations by/against Government Entities were approved:

(i)  Government Entities will take the decision to initiate proceedings for setting aside of the arbitral award, and any appeal(s) thereto, with the opinion of a Law Officer i.e. Attorney-General for India / the Solicitor-General for India / the Additional Solicitor-General for India, in consultation with Department of Legal Affairs.

(ii) Where a Government Entity has challenged an arbitral award, resultant of which the amount of the arbitral award has not been paid, 75% of such award will be paid by the Government Entity to the contractor / concessionaire against a bank guarantee only for the said 75% and not for its interest component. With respect to the interest payable to the Government. Entity, should the subsequent court order require refund of the said 75%, payment of the same will be as per court order.

The above order is applicable to Government Entities i.e. all Public Sector Undertakings of the Central Government, Autonomous Organisations of the Central Government, Special Purpose Vehicles (SPV) where 50% (fifty per cent) or more of the paid-up share capital is held by the Central Government, and all Central Government Departments.

Major Impact:

These approved measures would help in ensuring that the remedies of challenge/appeal are resorted to in a prudent and judicious manner, and in furthering the objective of infusion of liquidity into the construction sector. Given the significant multiplier effect the construction sector has on the economy, these are expected to give a major boost to economic growth. And as the sector that provides one of the largest segments of direct and indirect employment, its revival would also help in significant employment generation.

Over the last few years, an increasing number of infrastructure projects in the construction sector have been / are subject of prolonged legal proceedings. In a substantial number of these projects which go into arbitration, payment of award is not released to the contractor / concessionaire for the award is challenged in court.

Challenge of the award, in most cases, defers the payment of the arbitral award pending the decision in challenge/appeal, which process then takes years to attain finality. This is seen to cause severe liquidity constraints in the construction sector as the large sums of money raised by contractors / concessionaires for execution of projects get blocked – stressing their balance sheets. The foregoing then causes a ripple effect throughout the financial ecosystem – directly impacting the repayment of debt to lenders, leading to increasing Non-Performing Assets (NPAs) in their balance sheets.

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“We want ministries to spend… Expenditure secretary is meeting secretaries from other departments every week to push spending by departments and PSUs (public sector undertakings),” Sitharaman told media persons on Sunday, stressing that the government is not considering any reduction in spending.

With this rate cut, the direction has been set for direct taxes and it would be difficult to raise corporate tax rates from here, said the minister. Anyone who wants to do so would have to go to Parliament and explain the rationale for raising tax, she added.

The comments came two days after Sitharaman slashed base corporate tax rate to 22% from 30% for domestic companies and proposed a competitive 15% rate for new manufacturing units, offering a Rs 1.45 lakh crore fiscal boost as part of a series of measures to revive growth. The unexpected move had led to speculation that the government might resort to spending cuts to meet its budgeted fiscal deficit target of 3.3% of GDP for 2019-20.

The minister said on Sunday she will take stock of the fiscal situation during the exercise on revised estimates.

The minister said the government will continue to focus on disinvestment as planned, pointing out that 23 companies had been approved by the Cabinet Committee on Economic Affairs (CCEA).

Responding to a query on the proposed disinvestment of national carrier Air India, she expressed hope that it would be completed in the current fiscal. “The AISM (Air India Specific Alternative Mechanism) is likely to meet soon to finalise the contours,” Sitharaman said.

She said industry representatives had raised the issue of “reforms” in multiple interactions with her. Terming the corporate tax rate cut an “equivalent of surgical strike”, she said the government had taken a conscious call to keep the effective corporate tax rate below 25%. “High tax rates were one of the key impediments cited by foreign investors… With this cut, we have ticked all boxes for them,” she said. Further, the minister said, no country in Southeast Asia is offering a 15% tax rate (which is now applicable to new manufacturing units).

Asked about a reduction in personal income tax rates as demanded by many, the minister said the government has not yet thought of rate rationalisation. She said a detailed analysis of the Direct Tax Code task force report was on and that it had made very good recommendations for simplification and rationalisation of the tax structure.

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