Ordnance Factory Board’s Corporatisation Is Not a Done and Dusted Deal

In the absence of an executable roadmap, the plan to restructure OFB by the year end into seven corporations appears not only ambitious but, in a system rife with interminable delays, unlikely.

More than a year after the federal government’s decision to corporatise the Ordnance Factory Board (OFB), which manages a chain of 41 units across the country manufacturing assorted ammunition, main battle tanks, artillery and other varied ordnance, the Cabinet Committee on Security (CCS) recently approved its division into seven corporations.

Projected as a commercial masterstroke by the government, the impending corporatisation is expected to magically transform these entities long vilified by the services as inefficient, lacking quality control and providing ammunition and equipment at inflated prices into highly profitable and professional enterprises.

According to defence minister Rajnath Singh, the new entities will not only produce state-of-the-art materiel to fulfil Indian military’s needs, but also infiltrate the lucrative export market by propelling Indian materiel into the global arms bazaar, dominated by buyers like Saudi Arabia which is unlikely to opt for Indian materiel, or China and Pakistan which India will not export to, even if they were willing customers.

At any rate, considering the long history of the Ministry of Defence’s (MoD’s) poor policy implementation and despite the enthusiasm voiced by Singh who called it a ‘historic’ move with regard to national security and self-reliance, it would be naïve to assume that the corporatisation move is done and dusted.

Constitution of an empowered Group of Ministers (GoM) to oversee the OFB’s corporatisation, which will be chaired by Singh, indicates that many loose ends remain unknotted. Hence, in the absence of an executable roadmap, the proposed plan to complete the OFB’s transformation by the year end into seven corporations appears not only ambitious but, in a system rife with interminable delays, unlikely.

One of the principal obstacles in this endeavour, despite the government’s optimism, remains the OFB’s workers’ unions, representing some 70,000 odd employees, who had strongly opposed the corporatisation decision when it was first announced by finance minister Nirmala Sitharaman in May 2020.

The unions even threatened to go on strike but rescinded their decision in view of the military standoff with China along the disputed Line of Actual Control (LAC) in eastern Ladakh that began over 13 months ago.

Though media reports, quoting unnamed officials, have claimed that the unions’ concerns have been addressed and there would be no change in the OFB’s employees’ status, rumblings may persist. These reports indicate that the OFB personnel will continue to serve as government employees even after being transferred to the newly formed corporations on ‘deemed deputation’, initially for a two-year period.

And while the government would continue to bear their present and future pension liabilities, the uncertainty regarding their status after the initial two-year period of ‘deemed deputation’ is an aspect that could well become contentious between the unions and the government. Presumably, this will be one of the major points of discussion by the GoM.

Ordnance factory workers protest at Jabalpur. Photo: Twitter/swadeshchouhan

This has been a major issue ever since corporatisation was recommended by Vijay Kelkar who chaired an eponymous committee in 2005. He had even cautioned in December 2008 while appearing before the Standing Committee on Defence to meet with the Federations and obtain their viewpoint, as the first step in implementing the recommendation.

This was as direct a hint as any of the major obstacle the OFB’s corporatisation could face, but apparently no talks were held, and no mutually acceptable formula was in place when OFB’s corporatisation was peremptorily announced in May last year, needlessly positing the government and the OFB workers in adversarial positions.

Even now, there appears to be no blueprint, draft scheme, or something similar, to secure the OFB’s corporatisation, leave alone a realistic appraisal of what can be achieved through this move that entails a massive reorganisation of assets, manpower and administrative tasks, like constitution of the board of directors.

It would be a pity if these boards were to become sinecures for the serving and retired bureaucrats who cannot be absolved of the responsibility for the perceived and real shortcomings of the OFB.

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The new corporate structure

The OFB’s 41 units are divided into five groups: ammunition and explosives, weapons, vehicles and equipment, materials and components, armoured vehicles, and ordnance equipment factories, all located at diverse places across India.

These include cities and towns as far apart as Chandigarh, Dehradun, Korwa and Murad Nagar in the north, Bolangir and Nalanda in the east, Bhusaval in the west and Tiruchirappalli in the south, making it a mammoth task to weld them into seven cohesive corporations, keeping in mind the logistics and managerial aspects involved.

Additionally, the OFB manages several outlier organisations, including a recruitment centre, nine training institutes, three marketing offices, and five regional collectorates of security at multiple locations, apart from its own headquarters at Kolkata, that has operated out of the city ever since it was founded by the colonial administration in the early 19th century.

Integration of the five OFB factories located in Kanpur, for instance, that manufacture varied kit like field guns, howitzer barrels, small arms and parachutes with the new corporate structure will be very difficult to achieve for a variety of reasons. Similar difficulties would likely be encountered in integrating the cluster of factories in Maharashtra, Tamil Nadu and Madhya Pradesh.

The geographical spread of these proposed corporations would be an impediment in achieving cost efficiency essential for competing with more compact private sector entities that do not have the added liability of managing massive estates that many OFBs units own. Some, like the Gun and Shell Factory in Cossipore, near Kolkata, run into multiple acres of forest and grounds that not only need tending, but also personnel to manage them, adding to the overhead costs.

However, optimistic media reports, quoting unidentified official sources and leapfrogging over these hurdles, have suggested that the OFB’s eventual corporatisation will transform its factories into ‘productive and profitable assets, deepen specialisation in the product range, enhance competitiveness and improve quality and cost efficiency’.

It’s ironic that none of these reports are even remotely interested in demanding why these lofty objectives could not have been achieved for decades together, when the OFB was being directly administered by the MoD. And how the new corporations would perform better than the existing corporations which too are routinely criticised by the defence analysts for being pampered by the MoD despite their suboptimal performance.

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For over two decades, the omniscient strategic community has lobbied hard for these objectives, catalysed in recent years by the government’s ‘Atmanirbhar Bharat’ initiative that aims at self-reliance to meet India’s materiel needs, disregarding fiscal realities. This initiative too lacks a cohesive blueprint, but has morphed into a mantra that is iterated ad nauseum and remains unquestioned by the media as well as the large and influential body of strategic experts and military analysts.

It also remains unclear, for now, how these putative corporations will raise financial resources, not only to meet their working capital requirements, but also for modernisation which they desperately need and without which it would not be possible to deliver the outcomes expected of them.

Even if all these hurdles are magically overcome, sustenance and profitability of the corporations will depend on the MoD’s financial capacity to buy their products. Reeling under the impact of inadequate budgetary allocations, an impecunious MoD has been struggling to fast-track new procurements. Just two years earlier, it had withheld payments to a defence public sector undertaking to tide over its financial shortfall.

There is no mention in the announcement of these, and other, hurdles that lie ahead, and how these are proposed to be overcome. Consequently, the OFB’s corporatisation could well turn out to be quite different and adverse from what is presently anticipated, as the decision was evidently taken without forethought, forward planning, or both.

In their enthusiasm the advocates of corporatisation as the panacea for improving domestic standards of defence production by the public sector have disregarded US President Abraham Lincoln’s sage advice: “Give me six hours to chop down a tree and I will spend the first four sharpening the axe.”

They seem to believe that a tree as old as the OFB founded in 1802 can be spliced into seven pieces in the remaining six months of 2021, even without a razor-sharp axe. Perhaps they know something nobody else does.

Amit Cowshish is a former financial advisor (acquisitions), Ministry of Defence.