The recent dedication of seven defence Public Sector Undertakings (PSUs) by the Prime Minister has brought the spotlight on India’s defense industry. In an effort to ensure self-reliance and transform the country into a major military power, the government has initiated the reorganization of the Ordnance Factory Board (OFB), creating seven new state-owned PSUs.
About the Dissolution and Amalgamation
In a significant move, the four-decades old OFB has been dismantled by the Union government. The OFB’s 41 factories have been streamlined into seven new state-operated companies to produce a range of defense hardware such as munitions, heavy weapons, and vehicles. The newly formed companies will have their headquarters in five cities across India.
Originally, the OFB functioned as a subordinate office of the Ministry of Defence (MoD), serving as an umbrella organization for the ordnance factories and associated institutions. The board comprised 41 factories, nine training institutes, three regional marketing centres, and five regional controllers of safety, with its headquarters in Kolkata.
As part of the restructuring process, all employees of the erstwhile OFB (Group A, B, and C), who were working in production units, will be transferred to the corporate entities for a period of two years. During this tenure, their service conditions as central government staff will remain unchanged.
The Seven New Companies
From the restructuring of OFB, seven new companies have emerged: Munitions India Limited, Armoured Vehicles Nigam Limited, Advanced Weapons and Equipment India Limited, Troop Comforts Limited, Yantra India Limited, India Optel Limited, and Gliders India Limited.
The Significance of the Restructuring
This restructuring comes in response to concerns raised about the high costs, inconsistent quality, and supply delay of OFB products by the armed forces. The new setup aims to address these issues, making these companies more competitive while also opening up new opportunities in the market, including exports.
Steps Towards Self-Reliance in the Defence Sector
The corporatization of the OFB signifies a significant move towards attaining self-reliance in the defense sector. Furthermore, the Foreign Direct Investment (FDI) limit in defense manufacturing has been raised from 49% to 74% under the automatic route.
Additionally, to boost the domestic defense industry, the government plans to set up two Defense Industrial Corridors in Uttar Pradesh and Tamil Nadu. Moreover, a Project Management Unit (PMU) will be established for contract management purposes to ensure time-bound defense procurement and faster decision-making.
The Defence Acquisition Procedure (DAP) 2020 has been introduced as part of these initiatives. An important step towards reducing the defense import bill is the government’s decision to issue a list of weapons and platforms banned for imports. Such items can only be procured from the domestic market, and a separate budget provision has been made for domestic capital procurement.
