Dissolution of Ordnance Factory Board (OFB)

In Context

• Recently, the Union government has ordered the dissolution of the four-decade-old Ordnance Factory Board (OFB) with effect from October 1, 2021.

Background

• 41 factories of OFB across the country will be dissolved into seven new Defence Public Sector Undertakings (DPSU). 
• The newly created entities will be 100% owned by the government.
• These entities will be responsible for different verticals of the products such as:
  • Ammunition and Explosives group for the production of ammunition
  • Vehicles group for the production of defence mobility and combat vehicles.
• All OFB employees in the production units will be transferred to the new corporate entities on a deemed deputation initially for a period of two years without altering their service as central government employees.
• Pension liabilities of the retirees and existing employees will continue to be borne by the government.

Reasons for Corporatization

• CAG Report:
  • A performance evaluation by the Comptroller and Auditor General (CAG) in its report for 2019 on the OFB, highlights a few of the lacunae, which prohibits the organisation from working well.
• Overheads: 
  • (expenses not directly attributed to creating a product or service) It constitutes a staggering 33% of the overall allotted budget for the year.
  • The major contributors being supervision costs and indirect labour costs.
• Delayed Production:
  • The Ordnance factories achieved production targets for only 49% of the items.
  • More than half the inventory (52%) was store-in-hand, procured for the manufacture but not used within the year by the factories.
• The Atmanirbhar Bharat initiative, also calls for the Corporatisation of OFB.
• Further, the restructuring of OFBs is aimed at achieving the following objectives:
  • Making it a productive and profitable asset
  • Deepen specialisation in the product range
  • Enhance competitiveness
  • Improve quality and cost-efficiency
  • Overcome various shortcomings in the existing system and provide these companies opportunities in the market, including exports
  • Provide more autonomy, as well as improve accountability and efficiency.

Challenges

• Corporatisation (ownership and management still lies with the government) would eventually lead to privatisation (transfer of ownership and management rights to the private player).
• General key challenges in implementing the privatization agenda include:
  • opposition by the staff of the state-owned enterprises slated for privatization, 
  • the problem of clearing accumulated debts of the enterprises,
  • fear of job loss: future of the 75,000 plus employees currently working in the ordnance factories.
• The new corporate entities would not be able to survive the unique market environment of defence products that have very unstable demand and supply dynamics.
• Restructuring will result in greater autonomy and lesser government control over the corporation.
• Essential Defence Services Ordinance (EDSO) promulgated by the Centre, earlier, makes it illegal for the employees to go on strike against the government’s decision to corporatise the Ordnance Factory Board (OFB) that administers these factories and other associated organisations. This will further result in tussle between the government and the public.

Conclusion

• The step by the government will help make the ordnance factories more efficient and help India’s indigenous weapons development and manufacturing efforts become more efficient.

Source: TH