Starting with an overview of a recent development, the government’s decision to corporatise the Ordnance Factory Board (OFB) has been met with significant opposition from trade unions.
The Ordnance Factory Board and Its Role
The OFB serves as a comprehensive entity that encompasses ordnance factories and other associated institutions. At present, it operates as a subordinate office under the Ministry of Defence (MoD). The legacy of OFB dates back to 1712 when the first Indian ordnance factory was established by the Dutch Company as a GunPowder Factory in West Bengal. Today, it comprises 41 factories, nine training institutes, three regional marketing centres, and five regional controllers of safety, all managed from its headquarters in Kolkata.
The OFB plays a critical role not just in supplying weapons, ammunition, and supplies for the armed forces, but also in providing for paramilitary and police forces. Its production categories span civilian and military-grade arms and ammunition, explosives, propellants, chemicals for missile systems, military vehicles, armoured vehicles, optical devices, parachutes, support equipment, troop clothing, and general store items.
The Corporatization Initiative
In an effort to increase efficiency and accountability, an Empowered Group of Ministers (EGoM) for Corporatization was created in September 2020 under the leadership of the Defence Minister. The group’s mission is to supervise the entire transition process, ensuring that the employees’ wages and retirement benefits are protected.
Corporatization will morph the OFB into one or more fully government-owned entities under the Companies Act, 2013, following the pattern of public sector undertakings. In line with the Atmanirbhar Bharat initiative, the OFB’s corporatization aims to enhance autonomy, accountability, and efficiency in ordnance supply chains.
Reasons for Corporatization
A report by the Comptroller and Auditor General (CAG) in 2019 pointed out various shortcomings in the OFB’s operations, sparking the corporatization initiative. The report revealed that overhead expenses accounted for a hefty 33% of the total budget allocated for that year.
Furthermore, delayed production was a recurring issue, with the ordnance factories only achieving production targets for 49% of items. More than half of the inventory procured for manufacturing remained unused, contributing to inefficiency.
Apprehensions & Concerns
Despite the projected benefits, the decision to corporatize OFB has raised several concerns among employees and trade unions. They fear that the transition might eventually lead to privatisation, shifting the ownership and management from government hands to private entities. The new corporate entities might not be able to adapt to the unpredictable demand and supply dynamic in the defence products market.
Another concern is the anticipated increase in autonomy which could lead to less government control and potential job losses. However, the government argues that restructuring will modernise OFB, and make it flexible and efficient.
The Way Forward
Until a satisfactory conclusion is reached through negotiations with the protesting unions, the MoD has put the corporatization process on hold. Encouraging broader consultations with all stakeholders is essential to address sensitive issues associated with corporatization. A well-thought-out plan would help soothe apprehensions about the proposed changes.
