Speaking at the CII Global Economic Policy Summit, he said the product will boost liquidity in the infrastructure sectors. “On December 19, our ministry is launching India’s first-ever surety bond insurance product…that is going to give a good relief to the contractors,” he said.
These will help boost liquidity in the infrastructure sector by freeing up contractors’ working capital stuck in bank guarantees, he said, adding that contractors can utilise this fund for the growth of their business.
As per industry estimates, banks charge about 30-50% of cash money margin from smaller construction companies for bank guarantees.
The premium charged for this surety bond is expected to be kept lower to make the product affordable.
Surety bonds can be used as a substitute for bank guarantees in government procurement tenders.
The Insurance Regulatory and Development Authority of India (IRDAI) had issued guidelines for these bonds and allowed their issuance from April 1 this year. A government official, privy to the development, said the first issuance will be from Bajaj Allianz.
IRDAI’s guidelines have listed six types of surety contracts. These contracts are being viewed as essential for meeting the infrastructure development goals.
In the Budget 2022-23, FM Nirmala Sitharaman had announced that surety bonds will be accepted as a substitute for bank guarantee in government procurements.
This was done with the intent to reduce indirect cost for suppliers and work-contractors.
Gadkari said the global economy is facing recession and that spending should be ramped up. “It is the time for the Indian economy to create more infrastructure, increase expenditure, and create employment potential to resolve the problem of recession.”
He said that the centre is open to changing policies to support the growth of Indian industry.
