Reforms in Ordnance Factory Board

In News

In a huge defence reform, the Union Cabinet approved the corporatisation of the Ordnance Factory Board (OFB).

About

• The ‘Reform’ plan  was first mooted two decades ago to streamline the functioning of the 41 ordnance factories across the country.
  • In Reform, these 41 ordnance factories will be subsumed  into seven fully government owned corporate entities on the lines of Defence Public Sector Undertakings (DPSU).

Corporatization of OFB 

• The decision to  transform OFB into one or more government-owned corporate entities was taken by the Cabinet Committee on Security in July 2020.
  • It was done to improve the autonomy, accountability and efficiency in ordnance supplies.
• In September, the government formed an Empowered Group of Ministers (EGoM) to oversee the process.
• The  factories would be subsumed  based on the type of manufacturing.
  • The ammunition and explosives group would be mainly engaged in producing ammunition of various calibre and explosives, with huge potential to grow exponentially, not only by way of ‘Make in India’ but also by ‘Making for the World’.
  • Similarly, the vehicles group would mainly engage in producing defence mobility and combat vehicles such as tanks, trawls, infantry and mine protected vehicles.
  • The weapons and equipment group would be mainly engaged in production of small arms, medium and large calibre guns and other weapon systems and is expected to increase its share in the domestic market through meeting the demand as well as product diversification.
  • The troop comfort items group, the ancillary group, the opto-electronics group and the parachute group constituted the entire structure, once implemented.
• EGoM would decide upon the matters related to implementation and review any issues arising from time to time.

Aims and Objectives 

• It is a major decision in terms of national security and also makes the country self-sufficient in defence manufacturing.
• This restructuring is aimed at transforming the ordnance factories into productive and profitable assets, deepening specialisation in the product range, enhancing competitiveness, improving quality and achieving cost efficiency.
• It would also help in overcoming various shortcomings in the existing system of the OFB by eliminating inefficient supply chains and provide these companies incentive to become competitive and explore new opportunities in the market, including exports
• This move would allow these companies autonomy and help improve accountability and efficiency. 

Need for Corporatisation

• Quality of products was deteriorating:
  • The OFB had become synonymous with poor quality products, delayed timelines and lack of technological advancements.
• High cost of production:
  • The production cost is too high because the production value per employee is very low. 
  • Despite the OFB products being priced without charging any profit over the cost of production, the military complains that the cost is too high.
• Way of Functioning is improper and fails timelines:
  • Apart from the armed forces, which have been complaining for years, the Comptroller and Auditor General of India (CAG) has in multiple reports criticised the department for its way of functioning.
  • A CAG report in 2018 said that a large number of production orders given to the OFB remained outstanding as of March that year. The oldest of these production orders were from 2009-2010.
  • The latest example of OFB failing to deliver to the armed forces in a fixed timeline is that of the Dhanush guns.  
• Consistent conflicts at border needs focus:
  • Armed forces are involved in a conflict with China in Ladakh and have been seeking more artillery guns to “overcome operational voids in the medium artillery in HAA (High Altitude Area) along the northern borders”. 
• Army Casualties and wastage of money:
  • An internal army assessment mentioned about the faulty ammunition and armament supplied by the OFB caused army casualties and bled the exchequer. 
  • The report said that there were 403 accidents over the last six years, which had resulted in the deaths of 27 soldiers and a loss of Rs 960 crore. 

Apprehension about Employees

The Government has ensured safeguarding the interests of the employees of Ordnance Factory Board (OFB) post corporatisation of OFB, inter-alia, in the following manner:-

• It has been decided that all the employees of OFB (Group A, B & C), belonging to the production units and also the non-production units being handed over to the new DPSUs (to be formed) would be transferred to these DPSU(s) on terms of foreign service without any deputation allowance (deemed deputation) initially for a period of two years from the appointed date.
• Till such time the employees remain on deemed deputation to the new entities, they shall continue to be subject to all rules and regulations as are applicable to the Central Government servants. Their pay scales, allowances, leave, medical facilities, career progression and other service conditions will also continue to be governed by the extant rules, regulations and orders, as are applicable to the Central Government servants.
• The pension liabilities of the retirees and existing employees will continue to be borne by the Government.
• Issues of safeguarding interests of employees are dealt by the Government.Since the announcement of the Government to undertake corporatisation of OFB in May, 2020, the Government has held various discussions with the OFB employees’ Federations regarding the corporatisation of OFB under Chairmanship of Secretary (Defence Production). 

Sources: PIB