Come October 1 and the close to 250-year-old Ordnance Factory Board (OFB) will cease to exist with its factories, assets and employees set to be split into seven distinct defence public sector undertakings (DPSUs). This is in keeping with long-standing plans of the government to improve the functioning of the factories that play a significant role in meeting India’s defence-related needs but are seen to be plagued by inefficiencies.

What Changes For OFB And Its Workers?

The Ministry of Defence in an order on September 28 said that the OFB will stand dissolved from October 1. Its 41 factories and the 70,000 employees on its rolls will now be split up into seven new public sector units.

The seven defence PSUs are: Munitions India Ltd, Armoured Vehicles Nigam Ltd, Advanced Weapons and Equipment India Ltd, Troop Comforts Ltd, Yantra India Ltd, India Optel Ltd and Gliders India Ltd.

The Union Cabinet had earlier this year okayed the plan to split the OFB — which has an annual turnover of around Rs 19,000 crore — into the seven DPSUs, saying that the move was designed to “enhance functional autonomy, efficiency and unleash new growth potential and innovation".

While the OFB employees’ unions had opposed the move to corporatize OFB, the defence ministry had said in an August 2 press statement that the government had “ensured safeguarding the interests of the employees of OFB post corporatisation.

“The government has decided that all the employees of OFB (Group A, B & C) belonging to the production units and also the identified non-production units… shall be transferred en masse to the new DPSUs on terms of foreign service without any deputation allowance (deemed deputation) initially for a period of two years from the appointed date (October 1)," the ministry is reported to have said in its latest order.

The August statement had also noted that “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" and that their pays, allowances and other service conditions will be subject to existing rules.

What Is The Ordnance Factory Board?

The Kolkata-based OFB presides over a group 41 factories that specialise in production, testing, logistics, research, development and marketing of “a comprehensive product range in the area of land, sea and air systems".

The origin of the OFB can be traced back to British times when the colonialists set up the Board of Ordnance at Kolkata’s Fort William in 1775. Thereafter, in 1787, a gunpowder factory was established not far from Kolkata at Ishapore, followed in 1801 by the setting up of a gun carriage factory at Cossipore, also on the outskirts of the Bengal capital.

At present, the 41 factories are made up of 11 ammunition and explosives factories, 10 weapons, vehicles and equipment factories, and a total of 20 material and components, armoured vehicles and ordnance equipment factories.

What Has Driven OFB’s Corporatisation?

The Centre had announced that these 41 factories will be bunched together under seven new companies, all of which will function as 100 per cent government-owned public sector undertakings (PSUs). The Centre has said that the restructuring will help improve the accountability, efficiency and competitiveness of these factories.

In a press release in December 2019, the Ministry of Defence had noted that “during the past two decades, several high-level committees like TKA Nair Committee, Vijay Kelkar Committee and Raman Puri Committee have… recommended that ordnance factories should be converted from a government department into a corporate entity".

It was in pursuit of that target that the Cabinet Committee on Security had last July approved the decision to convert OFB “into one or more than one 100 per cent government-owned corporate entities, registered under the Companies Act 2013". The latest announcement is a step towards giving effect to that decision.

How Will It Help?

The seven new entities will function like any other existing defence public sector undertaking (DPSU) such as Hindustan Aeronautics Ltd (HAL) or Bharat Electronics Limited (BEL). While the key goal is ensure smoother and more timely meeting of domestic targets, officials said that the restructuring has also been done with an eye on stepping up on India’s defence exports game. According to reports, the overhaul will be implemented by the empowered group of ministers led by Defence Minister Rajnath Singh.

What Necessitated The Restructuring?

A Comptroller and Auditor General (CAG), in the report on the ordnance factories for the year ended March 2018, noted that “production in factories continued to fall short of targets" and that the various ordnance factories “could achieve targets for only 49 per cent of items in 2017-18". The CAG added that “a significant quantity of Army’s demand for some principal ammunition items remained outstanding as of 31 March 2018 which may adversely affect their operational preparedness".

Inefficiencies in production and delays may deemed to be a primary reason behind the overhaul of OFB. But it was a proposal that had not found support among the workers’ unions of the factories. In its press note on corporatisation last year, the Ministry of Defence had said that “the government has taken note of the strike by workers of OFB against the proposed corporatisation and their concerns". In response, it said that an Empowered Group of Ministers (EGoM) had been set up under the defence minister to address issues of “transition support and redeployment plan of employees while safeguarding their wages and retirement benefits".

Announcing the restructuring plan on June 16, Defence Minister Singh said there will be no change in service conditions of the nearly 70,000 OFB employees. Further, the Centre would continue to foot the pension bill for retired and existing employees.