Ordnance Factories corporatisation: MoD pushes ahead, workers push back - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Friday 11 September 2020

Ordnance Factories corporatisation: MoD pushes ahead, workers push back

Half built tanks at the Ordnance Factory Board's factory outside Chennai


By Ajai Shukla

Business Standard, 11th Sept 20


Moving ahead with a longstanding proposal to corporatise the Ordnance Factory Board (OFB) and its 41 factories dotted around the country, the Ministry of Defence (MoD) on Thursday announced the appointment of private sector consultants that would advise the government on how to proceed.


“The department has selected KPMG Advisory Services Pvt Ltd (Lead Consortium Member) with Khaitan & Co Ltd as consortium member, as the consultancy agency for the project,” the MoD announced on Thursday.


“The contract with the consultancy agency would be signed shortly,” it said, after which work would begin on corporatising the OFB.


The move is being strongly resisted by the OFB’s 82,000 workers, who have called an indefinite strike from October 12.


Since independence, the OFB and its factories have been wholly owned by the MoD. They manufacture defence equipment to meet indents placed by the three services, which pay them on a “cost plus” basis.


The military has often complained, and the MoD has agreed, that the OFB’s cost of production is too high because its production value per employee is too low.


Corporatisation involves switching from this model to the defence public sector undertaking (DPSU) model. DPSUs are not owned by the MoD, but they sign a Memorandum of Understanding (MoU) with the ministry every year, which commits them to achieve a set pf negotiated production targets.


The proposal to corporatize the OFB has been heavily contested by its employees since the Vijay Kelkar Committee mooted it in 2005-06. At that time, the proposal was shelved after OFB employee unions threatened to strike.


It was taken up again by the Bharatiya Janata Party (BJP)-led government in 2014, but faced strong resistance again from the OFB’s 80,000 workers and 1,500 officers.


The Indian Ordnance Factory Service (IOFS) Association has written multiple letters to the defence minister, arguing that the OFB was not created to function on a commercial basis, but to provide a strategic surge capacity for wartime, when its large number of workers could produce the large volumes of arms, ammunition and warlike stores that the military would suddenly need.


The IOFS points out that the OFB model involves identifying a requirement, concluding a tender for transfer of technology (ToT) to the OFB and then manufacturing the equipment to fulfil tenders placed by the military.


However, if the military does not place tenders, the OFB’s production capacity remains under-utilised for reasons over which it has no control.


OFB officials cite the example of OF Korwa, which was set up to manufacture Close Quarter Battle (CQB) Carbines but remains without orders. The cost of the establishment, however, is paid by the MoD.


In 2018-19, when the government resumed pushing OFB corporatisation, the OFB workers’ unions threatened a strike from August 20, 2019. On Aug 16, 2019, the MoD told Parliament it had met and negotiated with OFB unions and that there was no move to privatise the OFB. The MoD said it would “keep the process of dialogue open to arrive at a mutual understanding.”


On May 16, Finance Minister Nirmala Sitharaman again announced corporatisation of OFB amongst a series of measures to galvanise defence industry. This would “improve the autonomy, accountability and efficiency of ordnance supplies,” she said.


On Aug 27, Prime Minister Narendra Modi himself committed to corporatizing the OFB. “For decades, Ordnance Factories were run like government departments… Now we are moving towards corporatising these factories.”


  1. The factory reminds me of one of China's underrated advantages in a war. It has a lot of weapons factories and the best collection of manufacturing engineering in the world. In a short time it would be able to produce a lot of missiles so in a war the Rocket Force would be able to use missiles with basically reckless abandon. How does that play out during a war in the boundary area. Does it mean that on the Indian side of the border it wouldn't be possible for a formation to assemble together and move around?

  2. These lazy workers of OFB produce defective products that no one in their right mind would want to use. On average 24% of all 7.62 mm ammunition made by OFB is defective! That is 11 times (1100%) above acceptable level! (Source: CAG) But they always have excuses and never change. I hop their either shut down or privatized for sake of Jawans and India.

  3. Very Important for it to be privatized than the army cannot say we r not getting quality products on the other hand the workers need to to be rehabilitated in a proper manner and given jobs in central government offices or paid a very handsome amount of money as VRS or any sought of thing bcs of some peoples mistake all needn't suffer

  4. These need to be not just made corporate, but MoD needs to off its back in terms of management.

  5. With the kind of brute force majority that the NDA have and the kind of popularity that the PM enjoys, Corporatisation of the Ordinance board is far cry from any meaningful OFB reform. Even if the NDA started privatization from 2015, we could have achieved so much. It is too little and too late. And with Democracy (DRAMA-CRAZY) one hardly have the hope that this will get pushed through before next parliamentary election...

  6. # the handsome VRS, and moves into sinecures in babudom of all the workforce would be rather expensive, and unsustainable. an alternative would be to move out the management. that the management has not performed is not in doubt. at the same time an examination of most of their performance appraisals will show that they have been all receiving outstanding gradings. so narendrabhai and amitbhai could move out these top performing ordnance factories service officers and bring in some real performers from the IAS and other civil services, as well as top performers from the air force, army, navy. and give them a try. either these too would turn out to be duds and all those gushing stories that our tv anchors, journalists churn out about the wonderful IAS officers, generals, bravehearts and how they are doing great things will turn out to be just that - stories. indiya would indeed be shining. we all know that anilbhai, gautambhai, mukeshbhai, anandbhai, ratanbhai will render outstanding results, but surely we need to give our IAS, IPS officers, and generals, air marshals their opportunity to show their true loyalty and real patriotism when we are under such intense threats from a country with the world's best factories, production systems.

  7. When the DRDO top scientist takes 30+ years (time to retire) to develop the scramjet technology, what can we say about the OFB! What India sorely needs is professionalism in its workforce...that can only happen through Privatization and increasing the level of education of India's workforce. Also a sense of competition needs to be fostered and criteria defined to evaluate success. Let there be multiple players in this tournament, may the best win!

  8. I remember reading during 1990's that Indian army would buy socks @ 50 rupees when one can get the same from a private hosiery company's at 2 rupees.
    It is just a wastage of tax money of poor people of India. The tax money can be better utilized else where.


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