“It took us three years to introduce the Insurance Surety Bond product after following up with regulatory authorities. The bond can be offered in place of a bank guarantee. But they have made the product so restrictive that no contractor can avail it,” Gadkari said.
Insurance 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, 2022. IRDAI’s guidelines have listed six types of Surety Contracts. These contracts are being viewed as essential for meeting the infrastructure development goals of the country.
In April 2022, the centre had said that these 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.
It is estimated that banks seek close to 30-50 percent of cash money margin (from smaller construction companies), which is then stuck in the bank guarantees. To address these concerns, Gadkari oversaw the launch of India’s first Surety bonds product, offered by Bajaj Alliance, in December 2022.
Highlighting how there is a need to balance regulation, Gadkari said, “We need to find a breaking point where there is no compromise on quality but the scheme needs to be implementable. Idealistic scenarios are not helpful.”
“Technical and financial consultants need to exactly find this breaking point on priority while keeping in mind performance audit and timelines,” he added.Commenting on credit ratings Gadkari said that there should be no scope for manipulation of contractor rankings.