Dr Subhash Pandey, Distinguished Member, SAMDeS
The restructuring of the OFB into corporate entities was recommended in one or the other form by at least three expert committees on defence reforms set up in the last two decades — the TKS Nair Committee (2000), Vijay Kelkar Committee (2005), and Vice Admiral Raman Puri Committee (2015). A fourth committee, constituted by former Defence Minister Manohar Parrikar and chaired by Lt Gen D B Shekatkar, did not suggest corporatisation, but recommended regular audits of all ordnance units considering past performance.
Finally, October 1, 2021 marked a watershed moment in the history of arms and ammunition manufacturing in India when the Ordnance Factory Board (OFB) – the oldest surviving departmental commercial undertaking of the Government of India – was dissolved and the ‘management, control, operations and maintenance’ of 41 ordnance factories and of certain other assets was transferred alongwith some 70,000 employees to seven newly formed 100% government-owned companies.
The combined production value of the units transferred to these 7 companies was Rs.12,734 crore in 2020-21: Munitions India Ltd(Rs.4,752 crore), Armoured Vehicles Nigam Ltd(Rs.3,365 crore), Advanced Weapons and Equipment India Ltd (Rs.1,660 crore), Yantra India Ltd (Rs.1,367 crore), Troop Comforts Ltd (Rs.776 crore), India Optel Ltd (Rs.691 crore) and Gliders India Ltd (Rs.123 crore).
However, the OFB share of Defence industry is rather modest despite a diversified product line. Compared to the total size of the defence budget and the procurement budget of Defence Services and Para-Military/Police Forces, the total production value of 41 ordnance factories is rather small: Just Rs.12,734 crore in 2020-21, which was only 21.5 percent of the total value of public sector production (Rs.59,278 crore). Munitions India Ltd. (Rs.4,752 crore), Armoured Vehicles Nigam Ltd. (Rs.3,365 crore), Advanced Weapons and Equipment India Ltd. (Rs.1,660 crore), Yantra India Ltd. (Rs.1,367 crore), Troop Comforts Ltd. (Rs.776 crore), India Optel Ltd. (Rs.691 crore) and Gliders India Ltd. (Rs.123 crore). The other 9 Defence PSUs accounted for almost 80 per cent of total public sector defence industry production. The value of production in 2020-21 was : HAL Rs.19,912 crore, BEL Rs.13,947 crore, BEML Rs.3,556, BDL Rs.2,043 crore, GRSE Rs.1,133 crore, GSL Rs.827 crore, HSL Rs.393 crore, MDL 4,042 crore, MIDHANI Rs.772 crore. These are figures of Net Turnover, i.e., excluding taxes & duties.
Apart from 41 ‘production units’, some non-production units were also transferred ( 9 training institutes, 3 regional marketing centres, and 5 regional controllers of safety.) However, the government decided to retain with itself the management, control, operations and maintenance of certain identified non-production units of OFB (mostly schools and hospitals) and identified surplus land at 16 production units of OFB. These assets will be managed by the Directorate of Ordnance (Coordination & Services) under the Department of Defence Production. With the creation of these 7 new companies, there are now 16 Central Public Sector Undertakings under the administrative control of the Department of Defence Production, Ministry of Defence.
The product profile of OFB is quite diverse so the relatively small aggregate production value translates into low value production of a large number of products. In addition, the OFB also supplies a range of platforms and equipment such as the MBT and Dhanush at one end which are high value programs and Drogues and Parachutes at the other which are its niche competencies.
In October 2021, the order book of the corporatized OFB was more than Rs.65,000 crore, several years multiple of annual production value. Therefore, at least on account of this assured business, no major disruption is foreseen in their operating business scenario.
Clearly, the expectation is to let the new companies operate commercially without the burden of social infrastructure (schools and hospitals) and without the comfort of having surplus land for monetization. They have to focus on manufacturing in an industry that is being opened up to participation by private sector in a big way. Facilitative policies and enabling systems are being put in place to boost the indigenous manufacturing capabilities of domestic defence industry with liberalized access to export market for scaled up production.
The development of defence industry has been stalled for long due to excessive reliance on imports and uncertain, sub-optimal scale of ordering by the armed forces. The focus is on speeding up both indigenous R&D and production of supplies to the armed forces. Defence Production Policy – 2018 (DPrP-2018) has set a goal of India becoming among the top 5 global producers of the aerospace and defence manufacturing with annual export target of US$5 billion by 2025. As per media reports India vision @2047, the Department of Defence Production has set a production target of US$ 150 billion including exports of US$ 30 billion. The new entities have a large responsibility towards realising these objectives.
Concerns have often been raised by the armed forces regarding high costs, inconsistent quality and delay in supply of OFB products. How does this form of organisation affect these aspects of manufacturing? What will corporatization of ordnance factories achieve and how? We examine in this series of blogs.