No takers for bill discounting system

A bill discounting system put forward by the government for clearing pending bills of public works contractors worth Rs.2,500 crore is unlikely to crystallise for want of takers.

As per the system cleared by the Cabinet, instead of cash, the contractors will be issued ‘I Owe You’ instruments with irrevocable government guarantee for one year. These could be discounted through banks. When the banks present the instrument to the treasury, an indication will be given as to when the payment could be drawn.

Finance Department sources told

The Hindu here that after announcing the scheme and its budget wing issuing a set of guidelines on January 12, no clear course has been set for implementing it within a specific timeframe. The response from the banks as well as contractors has not been encouraging.

Since the arrears have surpassed the Public Works Department (PWD) budget of Rs.600 crore, whether the banks will come forward to bear the burden is a matter of serious concern. The banks are reported to have raised doubts about its financial viability and also may need a clearance of the Reserve Bank of India (RBI) to go ahead with the scheme, sources say.

Contractors sceptical

Contractors too are sceptical about its prospects as they fear it would add to their financial burden. But for some minor players, major contractors who have arrear worth crores have not come forward to join the scheme, The government and the contractors will have to equally bear the four per cent discount on each bill. Since the contractors are bound to pay 6.5 per cent as taxes, this new addition would further raise their commitment to 8.5 per cent.

The Finance Department has reportedly turned down their plea to waive the two per cent sales tax on the bills. The current financial condition did not permit the government to grant such concessions and hence the contractors are reluctant to clinch the deal, sources say.

The procedures proposed for clearing the bills too are reported to be cumbersome. Though the government has assured that the payments would be made according to seniority, 21 steps specified in the guidelines issued by Rabindrakumar Agarwal, Finance Secretary (Resources), are feared to impede its smooth execution. Unless the Finance Department took the lead to clear the air, the scheme may not take of as expected, the sources say.

Under the system, contractors will be issued ‘I Owe You’

Banks have raised doubts about its financial viability