OFB Corporatization – Still a long way to go

July 05, 2021 12:56 PM

The Ministry of Defence (MoD) still has a long way to go and cross several hurdles to achieve full corporatisation and realise its intended benefits.

Ordnance Factory BoardIt is astonishing that the MoD aspires to achieve through corporatisation of the OFB the objectives that could not be achieved all this while the Board functioned under its direct administrative control.

By Amit Cowshish, 

The Essential Defence Services Ordinance (EDSO) promulgated by the Centre last week makes it illegal for the 70,000 plus workers and officers running the network of the 41 ordnance factories across the country to strike work against the government’s decision to corporatise the Ordnance Factory Board (OFB) that administers these factories and other associated organisations.

While the ordinance may have removed a major impediment in implementing the tendentious decision, it also betrays an impulsive streak in decision-making and the absence of adequate planning or blueprint for achieving the intended results. The Ministry of Defence (MoD) still has a long way to go and cross several hurdles to achieve full corporatisation and realise its intended benefits.

The recommendation to corporatise the OFB to improve its efficiency was made by the MoD-appointed Kelkar Committee in 2005 but it remained in limbo till it was resurrected by Finance Minister Nirmala Sitharaman in May last year as a part of the package to repair the pandemic-savaged economy. As the later events show, this abrupt announcement was made without any groundwork or clarity of purpose beyond nebulous notions of defence reforms needed for achieving Atmanirbharat, or self-reliance, in defence.

The immediate fallout of the announcement was the workers’ federations’ decision to go on strike which was later withdrawn by them following the violent clashes in the Galwan Valley between the Indian Army (IA) and China’s People’s Liberation Army (PLA). The government too agreed to hold its hand and launch negotiations with the workers’ federations, which evidently produced no fruitful results.

Appearing before the Standing Committee on Defence in 2008, Dr Vijay L Kelkar, chairman of the eponymous committee that recommended OFB’s corporatization, had counselled the committee to first meet the workers’ federations to obtain their viewpoint. It was a clear pointer to the first hurdle the OFB’s corporatisation could face and the need to overcome it, but evidently his advice was not heeded, resulting in the impasse after the precipitative and avoidable announcement of the decision by the finance minister last year.

Meanwhile, pressure was built through helpful leaks of the IA’s internal report to the media which blamed the OFB for 403 accidents between 2014 and 2020 due to defective ammunition supplied by it, resulting in 27 fatalities and a loss of Rs 960 crore. It was also claimed that this amount could have financed the purchase of 100 artillery guns. Expectedly, the resulting outrage strengthened the case for corporatisation.

The OFB protested that the report, which was not even shared with it, failed to appreciate that poor gun maintenance, faulty firing drill and un-validated design changes in the weapon systems are among several reasons for such accidents. The OFB also pointed out that of all the cases involving casualties, in which investigation had been completed, a mere 2 per cent were attributable to it and that between 2011 and 2018, there were over 125 accidents involving ammunition procured from other domestic and foreign sources.

The coup de grace of the OFB’s response was the statement that the faulty ammunition procured from abroad during the 1999 Kargil war could have financed the procurement of an additional 55 artillery guns. Unsurprisingly, all these assertions, calling into question the primary justification given by the IA for the OFB’s corporatization, were largely ignored by the media and the strategic community which continue to consider corporatisation as the panacea for all the ills besetting the ordnance factories.

Breaking the ensuing lull, on June 15 the Union Cabinet approved the plan to convert 41 ordnance factories managed by the OFB under the watchful eyes of the Department of Defence Production (DDP) into seven corporations on the lines of the nine already existing Public Sector Undertakings (DPSUs).

The Cabinet decision and the Ordinance that followed notwithstanding, the road ahead for transmogrifying the OFB into seven corporations to manufacture state-of-the-art defence materiel and make inroads into the lucrative export market, which is what Defence Minister Rajnath Singh said the primary objective of the reform, may be bumpy.

This is borne out by the fact that an empowered Group of Ministers, headed by the defence minister, has been constituted to oversee corporatisation, which implies that the government itself foresees several impediments that would require intervention at the highest political level to overcome them. These impediments could be related to, for example, the status of the officers and workers who are presently government employees but will cease to be so after corporatisation.

Reorganisation of the ordnance factories would be equally challenging, While a few clusters of ordnance factories are co-located at one station, as in the case of the group of five factories located at Kanpur, several of them are located at isolated stations like Chandigarh, Dehradun, Muradnagar and Nalanda. It is not going to be easy to integrate them into viable companies in terms of geographical spread and core competence, complete all the legal formalities and constitute appropriate Boards of Directors, without which administrative, production, and cost efficiencies cannot be achieved.

Huge investments may also be required to upgrade and modernise the factories for them to be able to manufacture state-of-the-art defence materiel and compete with the private sector in India and the foreign manufacturers in the export market. This may turn out to be a problem for an impecunious MoD. The financial difficulty could perhaps be overcome through disinvestment or privatisation of the corporations, but it is a time-consuming and uncertain process.

With the MoD facing an enduring resource crunch and actively promoting the private sector, the new corporations face the prospect of being crowded out of the defence market as they cannot be transformed into highly efficient production houses capable of giving the private sector a run for their money any time soon.

It is astonishing that the MoD aspires to achieve through corporatisation of the OFB the objectives that could not be achieved all this while the Board functioned under its direct administrative control. It is also ironic that the strategic community that never tires of lambasting the existing DPSUs for being inefficient, unable to produce state-of-the-art equipment, and prone to cost and time overruns, wants another seven corporations to be added to the list of the nine existing units.

In the circumstances, it would indeed be astonishing if OFB’s corporatization is completed by the end of the year as expected by the government and the newly formed corporations start producing the expected results immediately thereafter. There seems to be no plan in place to cope with the effects of Murphy’s Law, which states that ‘Anything that can go wrong will go wrong’. Unfounded overconfidence is no substitute for calculated determination.

(The author is former Financial Advisor (Acquisition), Ministry of Defence. Views expressed are personal and do not reflect the official position or policy of Financial Express Online.)

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