The Defence Ministry has recently issued an order for the dissolution of the Ordnance Factory Board (OFB). The 220-year-old Ordnance Factory Board's unit has been corporatized under seven PSUs. How and why did this come about, and what lies ahead?
What is Ordnance Factory Board (OFB)
OFB consisted of the Indian Ordnance Factories is a government agency under the control of the department of defence production (DDP). It engaged in research, development, production, testing, marketing and logistics of a product range in the areas of air, land and sea systems. OFB comprised of 41 ordnance factories, nine training institutes, three regional marketing centres and four regional controllers of safety, spread all across the country.
With a total workforce of about 80,000 OFB has often been called the “Fourth Arm of Defence” and the “Force Behind the Armed Forces” of India, the reason it being the 35th largest defence equipment manufacturer in the world, 2nd largest in Asia, and the largest in India.
A large chunk of the weapons, ammunition, and supplies used by the armed forces, and paramilitary and police forces, came from OFB-run factories. Their products include civilian and military-grade arms and ammunition, explosives, propellants, and chemicals for missile systems, military vehicles, armoured vehicles, optical and electronic devices, parachutes, support equipment, troop clothing, and general store items for the armed forces.
A Brief Timeline
1712 – Establishment of the Dutch Ostend Company’s Gun Powder Factory at Ichhapur
1775 – Establishment of the Board of Ordnance at Fort William, Kolkata.
1787 – Establishment of the Gun Powder Factory at Ishapore.
1935 – Indian Ordnance Service was introduced to administer the whole Defence Production Industry of India.
1954 – Indian Ordnance Service (IOS) renamed to Indian Ordnance Factories Service (IOFS).
1979 – Ordnance Factory Board is established on 2 April.The New Structure
The 41 factories across the country have been dissolved into seven new Defence Public Sector Undertakings (DPSU). The newly created entities are 100% owned by the government. These entities are responsible for different verticals of the products such as the Ammunition and Explosives group will be engaged in the production of ammunition while a Vehicles group will engage in the production of defence mobility and combat vehicles.
The seven DPSUs are - Munitions India Ltd, Armoured Vehicles Nigam Ltd, Advanced Weapons and Equipment India Ltd, Troop Comforts Ltd, Yantra India Ltd, India Optel Ltd, and Gliders India Ltd. Each of these PSUs will run clusters of ordnance factories involved in manufacturing similar categories of products. Training and marketing establishments that have been part of the OFB will also be divided among the seven PSUs.
Why corporatization?
A performance evaluation by the Comptroller and Auditor General (CAG) in its report for 2019 on the OFB highlights a few of the lacunae, which ails this organisation. Overheads (expenses not directly attributed to creating a product or service) constitute a staggering 33% of the overall allotted budget for the year.
Delayed Production: The Ordnance factories achieved production targets for only 49% of the items. More than half the inventory (52%) was store-in-hand, procured for the manufacture but not used within the year by the factories. It has been argued that OFB’s monopoly has led to innovation drying up, apart from low productivity, high costs of production, and lack of flexibility at the higher managerial levels. Functioning directly under the Ministry of Defence, the OFB and its factories could not retain profits, and thus had no incentive to work towards increasing them, many have argued.
The Atmanirbhar Bharat initiative, also calls for the Corporatisation of OFB for: ‘improving autonomy, accountability and efficiency in ordnance suppliers’.
The Seven successor DPSUs & the Employees
All employees of the OFB (Group A, B and C) belonging to the production units would be transferred to the corporate entities on deemed deputation. The pension liabilities of the retirees and existing employees would continue to be borne by the government.
One of the main apprehensions of the employees is that corporatisation (ownership and management lie with the government) would eventually lead to privatisation (transfer of ownership and management rights to the private player). The new corporate entities would not be able to survive the unique market environment of defence products that have very unstable demand and supply dynamics. Thus, restructuring will result in greater autonomy and lesser government control over the corporation but there is a fear of job loss.
Relevance of the new structure & its way ahead
The restructuring would help in overcoming various shortcomings in the existing system of the OFB by eliminating inefficient supply chains and providing these companies with an incentive to become competitive and explore new opportunities in the market. It will allow these companies autonomy, as well as help, improve accountability and efficiency. The restructuring is aimed at transforming the ordnance factories into productive and profitable assets, deepening their specialisation in the product range, enhancing competitiveness and improving quality and cost-efficiency.
The corporatisation of OFB is likely to transform ordnance factories into a modernised, state of the art facility with flexible and better decision making in its functioning and there is a need to have a reflective roadmap for the plan. This can help to ease the apprehensions regarding corporatization.
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