Dismantling the Ordnance Factory Board

GOVERNANCE/ ECONOMY

• GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
• GS-3: Indian Economy & its challenges

Dismantling the Ordnance Factory Board

Context: The Ordnance Factory Board (OFB), the first of whose industrial establishments was set up in 1801, will cease to exist from October 1, and the assets, staff, and operations of its 41 ordnance factories will be transferred to seven defence public sector units (DPSUs).

• OFB also includes nine training institutes, three regional marketing centres, and five regional controllers of safety. 
• A large chunk of the weapons, ammunition, and supplies used by the armed forces, and paramilitary and police forces, come from OFB-run factories. 

For-against corporatisation

• 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.
• Corporatisation of OFB: The restructuring of OFB into corporate entities (owned by the government i.e Public Sector Company) was recommended in one or the other form by at least three expert committees on defence reforms set up in the last two decades —
  • TKS Nair Committee (2000)
  • Vijay Kelkar Committee (2005)
  • 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.
• The central argument has been that corporatisation, which will bring these entities under the purview of The Companies Act, would lead to 
  • Improvements in efficiency
  • Make products cost-competitive
  • Enhance their quality
• Employees argued that corporatisation was a “move towards privatisation”. They expressed fears of job losses, and said a corporate entity would not be able to survive the unique market environment of defence products with its unstable demand-supply dynamics.

What has been the progress of Corporatisation of OFB?

• In May 2020, during fourth round of Atmanirbhar Bharat initiative, Finance Minister announced the decision to corporatise OFB for “improving autonomy, accountability and efficiency in ordnance suppliers”.
• An Empowered Group of Ministers (EGoM) for Corporatisation was formed with Defence Minister Rajnath Singh as chairman “to oversee and guide the entire process, including transition support and redeployment plan of employees while safeguarding their wages and retirement benefits”.
• In October 2020, the government declared a proposed strike by workers’ federations “invalid and illegal”.
• As no reconciliation could be reached between government and protesting workers, the government announced this June that the OFB would be split into seven DPSUs – 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

Connecting the dots:

• Privatisation

• Recent Reforms in Defence Sector

•  Challenges in India’s defence trade
• Grasping the Defence Self-reliance