Govt Appoints High- Level Committee to suggest road map to turn 41 OFB into Govt Companies


The government will appoint a high- level committee comprising ministers to draw up a roadmap for turning government-controlled ordnance factories, which supply arms and ammunition and other equipment to the armed forces, into defence public sector units (DPSUs), government officials who did not want to be named said.

“The defence ministry will approach the Union cabinet soon for setting up of the committee,” one of the officials said.

Early into its second term in office, the Narendra Modi government has in principle decided to corporatize the 41 ordnance factories – the oldest government entities — to increase their efficiency, sharpen their competitive edge and expand their export potential.

Ordnance factories, overseen by the Ordnance Factory Board (OFB), manufacture all kinds of equipment used by the armed forces– from tanks and artillery guns to personal weapons and ammunition, and even shoes and mosquito nets. The Indian Army is the main consumer of OFB, which has an annual budget of around Rs 15,000 crore; salaries and other overhead costs account for nearly Rs 5,000 crore more.

“The committee will decide whether to bunch a certain number of the ordnance factories or all factories to turn the factories into DPSUs,” a second senior official said.

Unhappy with the move, about 60,000 industrial workers have gone on a month-long strike.

The present structure of OFB is “restrictive” and “needs drastic reforms” to ensure it has a future, a third senior official said.

For instance, any expenditure beyond Rs 10 crore by OFB needs to be cleared by both the organisation’s bureaucracy and the Defence Finance (do you mean defence and finance ministries), leading to unnecessary delays in decision making.

Interestingly, a new ordnance factory to be set up in Nalanda in Bihar, cleared by the Atal Behari Vajpayee government in 2000, at cost of Rs 900 crore, hasn’t come up yet. The current cost of setting up the factory is Rs 2,000 crore, the defence ministry underlined, justifying turning ordnance factories into DPSUs.

In contrast, public sector undertakings like National Aluminium Company Limited and Mishra Dhatu Nigam (Midhani) – a Hyderabad-based DPSU — have formed a joint venture worth about Rs 3,000 crore to produce rare alloys that will cut India’s dependence on imports, in particular from China, without delay.

The present structure of OFB doesn’t allow “flexibility at managerial and functional level,” a defence ministry official said.

“Modernisation of plant and machinery, entering into joint venture with other companies, entering into ToT {transfer of technology} agreements etc. all are subject to government regulations and instructions, reducing the leverage and the flexibility of any dynamic production and marketing unit,” the official said.

“As a government department, OFB cannot retain profits and therefore has no incentive to make profits. As a whole, OFB in its present structure of a departmental organization, may not be appropriate for carrying out production activities and standing in competition with its competitors in the private industry who have all the managerial and technical flexibility required for production and marketing activities,” the official added.

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