Union Cabinet, on Wednesday cleared the corporatisation of the Ordnance Factory Board (OFB), India’s main producer of weapons and military equipment. Top officials familiar with the developments said that the step was taken to boost its efficiency and competitiveness in a long-awaited reform in the country’s defence manufacturing sector.
The Ordnance Factory Board controls 41 ordnance factories. One of the officials cited above, speaking on the condition of anonymity said that the OFB will be split into seven government-owned entities that will produce ammunition and explosives, vehicles, weapons and equipment, troop comfort items, opto-electronics gear, parachutes and ancillary products.
Currently Ordnance factories are engaged in the production of tanks, armoured personnel carriers, mine protected vehicles, bombs, rockets, artillery guns, anti-aircraft guns, parachutes, small arms, clothing and leather equipment for soldiers.
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A second official said, “The restructuring will transform the ordnance factories into productive and profitable assets, deepen product specialisation, boost performance and improve quality, cost efficiency and accountability.” The official further said that it was a big step towards achieving self-reliance in defence manufacturing.
GOI expects the seven new professionally-managed entities likely to come up by the year-end. They are expected to increase their share in the domestic market through better capacity utilisation and also tap new export opportunities.
The first official said, “The new structure will help overcome various shortcomings in the existing OFB set-up by eliminating inefficient supply chains and provide these companies incentive to become competitive. It will boost their autonomy too.”
During the last two decades, various high-level committees have underlined the need to improve the functioning of the OFB. The committees have also stressed on making OFB factories vehicles of self-reliance for the country’s defence preparedness.
Defence minister Rajnath Singh described the decision to corporatise the OFB as a “historic one & a big decision from the point of view of national security.”
The factories controlled by the board employ at least 70,000 people. These employees under OFB have been against the move to corporatise it. Last August, three federations of defence civilian employees of the OFB gave a joint strike notice against the government’s plans to corporatise the board.
The workers’ federations had proposed a countrywide strike last year. It was called off after a reconciliation meeting.
Impact on OFB employees
Defence minister said that there would be no change in the service conditions of the OFB employees and the government was committed to safeguarding their interests.
All OFB employees across Groups A, B and C from different production units will be transferred to the corporate entities on deemed deputation for an initial period of two years without changing their service conditions as government employees.
At present, central government has to shell out around Rs 5,000 crore annually to pay the salaries of the OFB employees. Apart from that, it also gives around Rs 3,000 crore to OFB as an operational cost. The second official cited above said, “The pension liabilities of the retirees and existing employees will continue to be borne by the government.”
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An empowered group of ministers (EGoM) was constituted under the defence minister last year. This EGoM will oversee the board’s corporatisation and also take decisions on other related matters, the official added.
Internal assessment
An internal army assessment was carried out last year. The assessment flagged concerns about faulty ammunition and armament supplied by the OFB causing army casualties and bleeding the exchequer. It further observed that 403 accidents over the previous six years resulted in the deaths of 27 soldiers and a loss of ₹960 crore.
The note on the assessment said, “Lack of accountability and poor quality of production result in frequent accidents. This results in injuries and death of soldiers. On an average, one accident takes place per week.”
The OFB termed the army’s assessment as factually incorrect. In 2017, GOI took action against 13 defence ministry bureaucrats from the Indian Ordnance Factories Service for the repeated failures of the ordnance factories to meet the shortfall in ammunition and poor quality of products. CAG has also raised questions about the quality of products supplied by the OFB and its overall performance in its reports.
The ordnance factories were set up as “captive centres” to serve the needs of the armed forces. Lately, they have been facing performance-related issues for a long time. These issues are expected to be solved by the split of the OFB into seven entities.