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Ordnance Factory Board’s corporate makeover — the plan & how it impacts India’s arms production

The Union Cabinet Wednesday approved the corporatisation of the OFB, a plan which was first mooted two decades ago. 

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New Delhi: In a huge defence reform Wednesday, the Union Cabinet approved the corporatisation of the Ordnance Factory Board (OFB), a plan which was first mooted two decades ago to streamline the functioning of the 41 ordnance factories across the country.

The corporatisation of ordnance factories — which have become synonymous with poor quality products, delayed timelines and lack of technological advancements — will see these 41 factories subsumed as seven 100 per cent government-owned corporate entities, registered under the Companies Act 2013.

The ordnance factories are the oldest and the largest organisation in the country’s defence industry with a history that dates back to 1787, when a gunpowder factory was established at Ishapore by the British. The Ishapore factory had started production in 1791.

Headquartered at Kolkata, the OFB is a conglomerate of 41 factories, nine training institutes, three regional marketing centres and five regional controllers of safety. At present, these factories are divided under five clusters or operating groups and they produce a range of arms, ammunition, armoured and infantry combat vehicles, clothing items and others such as parachutes for the services. 

The OFB, which has a total workforce of around 81,500 personnel, comes under the administrative control of the Department of Defence Production in the defence ministry.

The government has now approved the corporatisation of OFB, which will give the organisation autonomy and take it out of the direct control of the Department of Defence Production. 

The three recognised federations of ordnance factory workers, with affiliations to the RSS, Left and the Congress, have, however, opposed the move and threatened to launch an agitation.

The government though has made up its mind to finish off the corporatisation by the end of this year.

To implement its decisions regarding the move, the government has decided to delegate the authority of the Cabinet to an Empowered Group of Ministers (EGoM), constituted under Defence Minister Rajnath Singh.

Other members of the EGoM are Home Minister Amit Shah, Finance Minister Nirmala Sitharaman and Labour and Employment Minister Santosh Gangwar.

Global consulting firm KPMG has been selected for the corporatisation move.

Also read: Expert panel to fine tune military theaterisation plan after stakeholders differ on key issues

The plan ahead

Cabinet Committee on Security had in July last year approved to convert OFB into one or more than one 100 per cent government-owned corporate entities, registered under the Companies Act 2013. 

In less than a year, the Union Cabinet has approved it. Government sources have said that the restructuring is aimed at transforming the Ordnance Factories into productive and profitable assets, deepening specialisation in the product range, enhancing competitiveness besides improving quality and cost-efficiency.

Under the plan, the 41 factories would be subsumed into seven 100 per cent government-owned corporate entities with professional management. 

These will be like other government-owned Defence Public Sector Undertakings like the Hindustan Aeronautics Limited and Bharat Dynamics Limited (BDL) among others.

Under the seven entities, there will be an Ammunition and Explosives Group, which would be mainly engaged in production of ammunition of various caliber and explosives with huge potential to grow exponentially, not only by way of Make in India but also by manufacturing for the world.

The Vehicles Group would mainly engage in production of defence mobility and combat vehicles such as tanks, trawls, armoured personnel carriers and mine-protected vehicles. It is expected to increase its share in the domestic market through better capacity utilisation and also explore new export markets.

The Weapons and Equipment Group would be mainly engaged in production of small arms, medium and large caliber guns and other weapon systems. It is also expected to increase its share in the domestic market through meeting domestic demand as well as product diversification.

In addition, the Troop Comfort Items Group, Ancillary Group, Opto-Electronics Group and Parachute Group constitute the entire structure.

Also read: Joint military command is the future but India can’t rush into it

Why corporatisation is needed

During the past two decades, several high-level committees — such as the TKA Nair Committee in 2000, Vijay Kelkar Committee of 2006, Vice Admiral Raman Puri Committee in 2016 and the Lt Gen D B Shekatkar Committee in 2016 — called for ordnance factories to be converted from a government department into a corporate entity. 

As mentioned earlier, the OFB had become synonymous with poor quality products, delayed timelines and lack of technological advancements.

The production cost is also too high because the production value per employee is very low. 

Because of this, despite the OFB products being priced without charging any profit over the cost of production (as it is barred from making profit from the supplies to the armed forces), the military complains that the cost is just too high.

Apart from the armed forces, which have been complaining for years, the Comptroller and Auditor General of India (CAG) has in multiple reports criticised the department for its way of functioning.

A CAG report in 2018 said that a large number of production orders given to the OFB remained outstanding as of March that year. The oldest of these production orders were from 2009-2010.  

The latest example of OFB failing to deliver to the armed forces in a fixed timeline is that of the Dhanush guns.

Since April 2019, when the induction of the Dhanush guns started, only 12 of the indigenously built long-range artillery guns have been delivered as of now. This is far below the 18 guns required to make a full regiment.  

This development comes at a time when the armed forces are involved in a conflict with China in Ladakh and have been seeking more artillery guns to “overcome operational voids in the medium artillery in HAA (High Altitude Area) along the northern borders”. 

Late last year, an internal army assessment had said faulty ammunition and armament supplied by the OFB caused army casualties and bled the exchequer. The report said that there were 403 accidents over the last six years, which had resulted in the deaths of 27 soldiers and a loss of Rs 960 crore.

The 27 fatalities cited in the Army assessment included the 19 that occurred in the 2016 accidental mine explosion at a depot in Pulgaon, Maharashtra. 

The OFB hit back with a statement saying only 19 per cent of the accidents involving defence ammunition between January 2015 and December 2019 could be attributed to the board.

Accusing the Army and the media of selective reportage, the OFB said its own records showed that between 2011 and 2018, there were more than 125 accidents involving ammunition procured from other sources, both domestic and foreign.

It even went on to point out that the Pulgaon accident involved anti-tank mines that had been developed by the Defence Research and Development Organisation (DRDO) and were manufactured strictly according to their design. “Design deficiencies were subsequently noticed and suitable changes are being evaluated,” it had said.

The public spat last year showed the state of affairs between the armed forces and the OFB.

Government says workers will be protected

The OFB Unions have been protesting the corporatisation for years fearing that it would eventually lead to job losses.

The government has told the Unions that it is committed to safeguard the interests of the employees. It has been decided that all the employees of OFB (Group A, B & C) belonging to the production units would be transferred to the corporate entities on deemed deputation initially for a period of two years without altering their service conditions as central government employees.

The pension liabilities of the retirees and existing employees will continue to be borne by the government.

(Edited by Arun Prashanth)

Also read: India’s military theatre commands could be delayed as there’s no consensus on basic structure


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