Ordnance factories’ moment in history

Synopsis: Corporatization of OFB is the first step towards reforming it. India need to do much more.

Introduction

Ordnance Factory Board (OFB) which started during the British era has ceased to exist starting today.

How was the OFB corporatized? 

The corporatization of OFB has been recommended by the various committees. It has been taken into action by recommendations of EGoM (Empowered Group of Ministers).

What is the OFB corporatization plan?

According to the EGoM recommendation for the corporatization of OFB contains the following things.

12 major Ordnance Factories (OFs) that produce ammunition and explosives will be grouped into a single DPSU called Munitions India Limited.

Five more OFs that manufacture vehicles will be grouped into a DPSU called Armoured Vehicles Nigam Limited.

Another five that manufacture weapons and equipment will combine to form Advanced Weapons and Equipment India Limited.

Eight more OFs that manufacture metals and steels will combine to form Yantra India Limited.

The remaining 11 OFs will form India Optel Limited, Gliders India Limited and Troop Comforts Limited.

What are the issues with OFB?

How OFB prices its product: It is currently done on a cost-plus basis. Under it, OFB adds up the cost of production (management, labour, materials, etc.) and bills the military after adding on a healthy profit margin, usually 15%. The military does not have any option of sourcing the product, even if it’s available cheaper. There is no mechanism to tighten up procedures and production processes in order to lower the costs.

These inbuilt inefficiencies are unlikely to be tackled by merely changing over from the OFB’s current functional model.

What can be done?

There is a need to ramp up production to the level that is needed in a war. Surge capacity requires to be built, and a cost is involved in maintaining this capacity. It is still now unclear that how this will be verified in the new manufacturing structures. The government should provide a proper layout for that.

With India going for corporatization, it would be wise if India learns from the experience of various countries that have corporatized their defence industries in the past, like the UK.

Source: This post is based on the article “Ordnance factories’ moment in history” published in Business Standard on 1^st October 2021.