New Delhi (Aryavarth): The National Highways Authority of India (NHAI) has been engaging in active dialogue with various stakeholders, including representatives from insurance companies, contractors, industry experts, and senior officials to accelerate the adoption of Insurance Surety Bonds for NHAI contracts. This initiative is aimed at exploring possibilities and resolving operational constraints for the broader application of these bonds as an alternative to Bank Guarantees (BGs).
NHAI organized a brainstorming session led by Shri Rajendra Kumar, Member (Finance), NHAI, Mr. Nilesh Sathe, Expert/Advisor, NHAI, and Ms. Mandakini Balodhi, Director (Insurance), DFS. The discussions revolved around analyzing the use of Insurance Surety Bonds as an additional method for submitting Bid Security and/or Performance Security Deposit. The adoption of these bonds is seen as a cost-effective measure that will provide adequate security for NHAI projects.
Insurance Surety Bonds function as instruments wherein insurance companies act as the ‘Surety’ and offer a financial guarantee that the contractor will fulfill its obligations according to the agreed terms. The Ministry of Finance, Government of India, has placed e-BG and Insurance Surety Bonds at par with BGs for all Government procurements. Globally, the Surety insurance market size is approximately USD 29.5 Billion, with India yet to participate.
With India expected to become the world’s third-largest construction market, the Infrastructure Sector alone would require an estimated Rs. 2.70 lakh crore of bank guarantees in 2023. This amount is expected to grow by 6 to 8 percent annually. Surety Bonds are considered a viable option to Bank Guarantees, offering longer maturity terms and cost-effective ways to finance contract security options. Additionally, these bonds could provide an estimated capital relief of Rs. 50,000 crore for the Infrastructure Sector.
As India aspires to reach the milestone of a US$ 5 Trillion economy, instruments such as Insurance Surety Bonds hold a key role. These bonds will enhance liquidity and the capacity of bidders and concessionaires, thereby strengthening the National Highway Infrastructure development. In turn, this growth will have a cascading positive impact on the Indian economy.
In conclusion, NHAI’s efforts to promote the adoption of Insurance Surety Bonds signal a strategic move towards strengthening the country’s infrastructure financing. The initiative is aligned with the broader economic goals of the nation, promising to play a critical role in India’s pursuit of becoming a global economic powerhouse. This effort reflects the government’s innovative approach to leveraging financial instruments that not only safeguard project interests but also contribute to the economic growth and development of the country.