Rifle Factory, Ishapore, a top ordnance factory in India

On August 20, close to 80,000 employees of the mammoth Ordnance Factory Board (OFB) began a month-long strike. This strike, one of the largest in the history of the organisation, was called to protest the government's moves to corporatise the Board. The proposal to do so was an agenda item of the Modi government in its first term itself, but was never implemented. The government now plans to appoint a committee to recommend steps to turn the OFB into a public sector firm.

The OFB comprises 41 Ordnance Factories, spread across the country and administered by a board based in Kolkata. The factories function as attached offices of the Department of Defence Production (DoDP), which is itself part of the Ministry of Defence (MoD). Taken together, they comprise the world's largest defence department, producing everything from uniforms and tents to ammunition, tanks and artillery pieces for the Indian armed forces. The OFB traces its origins to the Gun and Shell factory set up by the East India Company in Cossipore, near Kolkata, in 1801. Much progress has been made since then-this year, the government announced the production of AK-203 rifles at the 41st ordnance factory in Korwa, Amethi. The weapons are to be made under the joint venture Indo-Russia Rifles Private Ltd, which includes the OFB, Kalashnikov Concern and Rosoboronexport. Today, the Board receives an annual defence budget support of over Rs 2,000 crore, has 82,000 employees and holds over 60,000 acres of land. More than 80 per cent of the OFB's orders come from the army, though the cluster of 41 factories meets barely 50 per cent of the army's requirements.


The trouble, the MoD says, is a result of the peculiar organisational structure of the OFB. First, since these factories function as attached offices of the DoDP, every decision relating to them-from modernising plant and machinery to entering into joint ventures with other companies-is subject to government regulations and instructions, which reduces the leverage and flexibility of any dynamic production and marketing unit. Second, being government departments, they cannot retain profits and therefore have no incentive operate cost-effectively. Third, in its present form the OFB lacks technical and managerial flexibility and hence is incapable of competing with the private sector.

The MoD also says that the OFB monopoly-where it supplies products to a captive customer, the armed forces, on a nomination basis-brings its own set of problems. The main consequence of this monopoly is that there is no incentive for the OFB to improve quality. This also results in high overhead charges being loaded onto OFB products, with minimal innovation and technology development taking place. There are also issues of low productivity, further compounded by the fact that there is no penalty for delayed delivery to customers. A 2016 report by AK Saxena, additional controller general of Defence Accounts, also alleged that the OFB overcharges the armed forces for everything, from clothing to battle tanks. An indigenously assembled T-90 battle tank, he said, was twice as expensive as an original Russian-built T-90 tank. Army officials have also routinely taken issue with the poor quality of ammunition manufactured by the ordnance factories, saying that this has led to several fatal incidents.

Over the past 15 years, three government committees have suggested corporatising the OFB to increase its efficiency. In 2000, the T.K.A. Nair committee suggested the conversion of the Ordnance Factory Board into the Ordnance Factory Corporation Limited. In 2004, the Vijay Kelkar committee also recommended the same, suggesting that it be accorded the status of a Nav Ratna, along the lines of BSNL. Then, in 2015, the Vice Admiral Raman Puri committee recommended corporatising the OFB and splitting it into three or four segments, with each one specialising in a distinct area like weapons, ammunition and combat vehicles. The first moves to end the OFB monopoly came last year, when the government notified 275 non-core items which the armed forces could buy from the open market. In the past, the services had to buy these items exclusively from the OFB.

OFB employees, however, deny the MoD charges of inefficiency. They say that the factories lead the way in indigenisation and self reliance-the overall level of indigenisation of OFB products is 90 per cent. For ammunition, the most critical item in times of war, the level of indigenisation is 97 per cent. OFB officials also point to the indigenously built Dhanush 155 mm howitzer and the 130 mm gun being upgraded into a 155 mm 'Sharang' field gun, as distinct examples of the OFB's innovation. Nearly 25 per cent of the OFB's revenues, they say, now come from products made from internal research and development.

OFB officials say that 'around 98 per cent' of their industrial employees are on strike, including all 1,500 Group A officers and half the Group B officers. OFB unions say they see (and oppose) the prospect of creeping privatisation in the government's move. "The OFB is a war reserve and not a commercial enterprise," says C Srikumar, secretary of the All India Defence Employees Federation, one of the three employees' federations that are on strike. "If [the OFB] is turned into a corporation, it will become a sick enterprise like BSNL, and will be put up on the block for sale within three years."

It remains to be seen if these arguments will cut any ice with the government-which, for the moment, appears determined to move ahead with corporatisation.