Ordnance Factory Board dissolves today: Makeover plan and how it impacts India's arms production

The Ordnance Factory Board (OFB) will be dissolved with effect on Friday in line with a decision taken by the Union Cabinet earlier this year.

The Ordnance Factory Board has been supplying arms, ammunition and clothing to armed forces in India since 1801.

As the country bids goodbye to this 220-year-old establishment, here's a look at what happens to its over 70,000 employees and the future of India's defence industry.

What is the OFB?

The OFB manufactured everything from tanks and armoured vehicles to rifles, ammunition and clothing for the armed forces, and paramilitary and police forces.

Their products include civilian and military-grade arms and ammunition, explosives, propellants, and chemicals for missile systems, military vehicles, armoured vehicles, optical and electronic devices, parachutes, support equipment, troop clothing, and general store items for the armed forces.

While the OFB came into being in 1801, its origin can be traced to 1775, when the East India Company approved the establishment of the Board of Ordnance in Fort William, Kolkata with its aim to consolidate its military, economic and political hold on India.

The nomenclature ‘Ordnance Factory Board’ and its outgoing form came into existence in 1979 during the time of the Janata Party government at the Centre.

The annual turnover of the OFB, as per reports, was Rs 19,000 crore.

Dissolution of the OFB

The plan to dissolve the OFB had been on the agenda of the government for quite some time, having been proposed soon after the 2019 Lok Sabha election.

The decision to dissolve the establishment was then announced by Finance Minister Nirmala Sitharaman as part of her ‘Aatmanirbhar Bharat’ set of announcements in May 2020.

The idea behind the move was to improve autonomy, accountability and efficiency in ordnance supplies by dismantling the public sector behemoth into smaller, better managed companies.

In a meeting of the Cabinet Committee on Security in July 2020, the decision was ratified and the process began.
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”.

Government has constituted an Empowered Group of Ministers (EGoM), under the chairmanship of Defence Minister Rajnath Singh, to oversee and guide the entire process of corporatisation of Ordnance Factory Board (OFB): Ministry of Defence pic.twitter.com/PXqcBGguwj

— ANI (@ANI) September 11, 2020

Fast forward, in June 2021, the government announced its decision to split the OFB into seven defence public sector units (DPSU).

The Union Cabinet approved the plan on 16 June this year and on 28 September, the government announced that the Ordnance Factory Board would cease to exist from 1 October.

Why the government decided to dissolve OFB

The OFB which is directly under the Ministry of Defence has been unable to make profits, there was a lack of incentives, which led to high production of costs, low productivity and there was no flexibility at the managerial level.

An Indian Express report stated that discussions on restructuring with workers’ federations had failed to produce results on several occasions previously. 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.

Three committees — TKS Nair Committee (2000), Vijay Kelkar Committee (2005), and Vice Admiral Raman Puri Committee (2015) — have favoured corporatisation of the OFB.

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, and enhance their quality.

So, what next?

The government has said that the OFB will be split into seven Public Sector Undertaking (PSUs):
• Munitions India
• Armoured Vehicles Nigam
• Advanced Weapons and Equipment India
• Troop Comforts
• Yantra India
• India Optel
• Gliders India

All seven DPSUs will function as corporate entities with 100 percent ownership lying with the government. According to the government order, each of these PSUs will run clusters of Ordnance Factories (OFs) which will be involved in manufacturing similar categories of products. Also, the marketing and training establishments will be divided among the seven PSUs.

The government hopes that the decision to replace the Ordnance Factory Board with seven DPSUs would reform the defence production sector in India. The government aims at public-private partnerships to bring a similar change in the defence sector as the Green Revolution in agriculture and the White Revolution in dairy.

“We have opened up opportunities for mega defence programmes, including fighter aircraft, helicopters, tanks and submarines through a strategic partnership model that will help our private companies become global giants in the years to come,” Defence Minister Rajnath Singh said earlier this week when he announced the end date for the OFB.

What about the employees?

In a written reply, on 1 August, Minister of State for Defence Ajay Bhatt said that the employees shall continue to be subjected to rules and regulations as applicable to the central government.

According to the reply, the allowances, pay scales, medical facilities, leave, career progression and other service conditions will be governed by the extant rules, orders and regulations which were applicable to the Central government servants. Also, the government will take care of the pension liabilities of the retirees and existing employees.

However, the workers at the 41 factories and their allied units aren't happy with the move. From the time the government first proposed corporatisation in 2019, they have been against the idea. In one of their first representations to the defence minister in 2019, they said that converting the ordnance factories into a corporation was commercially unviable, and that “the experience of the past two decades is that corporatisation is a route to privatisation”.

Some of the employees have said 1 October will be marked as a Black Day and their fight will continue.

With inputs from agencies