The Indian Ordnance Board headquartered at Kolkata, functions under the Department of Defence Production in MoD with 41 Ordnance Factories (OFs), 13 ordnance R&D centres, 9 training establishments, 4 Regional Controllers of Safety and 3 regional marketing centres spanning 24 locations. OFs core competence lay in 6 areas – ammunition, explosives and propellants; military vehicles; AVs; instruments and optical devices; parachutes; and troop comfort and general stores. Besides supplying the Indian armed forces (its captive market), they also aim at exports of arms and ammunition to friendly countries, thus, helping cement bilateral relations with them.

India stands on the threshold of regional/international security leadership, and is challenged by China and Pakistan, with the threat of a two-front scenario.  Its armed forces need to be supported with the best technologies and military hardware. In the last six years much has been done to reform the defence industrial sector, and defence is the main pillar of  ‘Make in India’, further, FDI increased from 49 to 74% through the automatic route, a revised ‘Defence Acquisition Procedure’ brought in vogue in September 2020, and a decision underway to corporatise the OFB.

OFB Performance Audit

The three unions of the 82,000 strong OF workers feel corporatisation will ultimately fail and “lead to privatisation, which poses a threat to national security”^[2]. That their war reserve capacity caters for surge requirements, and “no private sector can maintain idle capacity”. A performance audit reveals that how far they are from the truth. A series of  committees have recommended corporatisation of OFB over the years – TKA Nair Committee of 2000, Kelkar Committee 2004, Sisodia Committee 2007, Naresh Chandra committee 2012 etc.

Production Shortfall

The CAG report of 2019 highlights Ordnance Factories’ production targets and shortfalls over the last five years [3]

OFB Production Targets and Achievements

Export Earnings    

The amount earned from exports of arms and ammunitions during the last five years are as follows:

Exports by OFB (Source: 43^rd Report of OFB to Parliament)

Export market demand that there should be standardisation of product components and categorisation, and this will have to be brought in line with Russian/or NATO specifications to meet global requirements.

In-house R&D        

The 43^rd Lok Sabha report, 2017-18 highlighted the abysmal levels of in-house R&D,  as the percentage of expenditure in R&D to overall allocation during last five years, was found to be 0.40% in 2012-13, 0.38% in 2013-14, 0.50% in 2014-15, 0.67% in 2015-16 & 0.40% in the year 2016-17. (43^rd Lok Sabha report, 2017-18)

Quality

It further called the quality of products manufactured by OFs as “distressing” (43rd Report to Lok Sabha 2017-18)[4]. IA  raised a report  to MOD in March 2019 on quality of ammunition, reflecting casualties suffered over the years due to accidents. Poor quality of production resulted in frequent accidents causing injuries and death of soldiers. Another Army Note of end September 2020 pegs an average of one accident taking place every week. Over six years the details are tabulated:-

This has also resulted in loss to exchequer  as due to poor quality, production worth Rs. 658.58 cr ammunition was disposed off within Self Life between April 2014 and April 2019, and Rs. 303.23 cr worth of mines disposed off within shelf life post the Pulgaon accident in May 2016. In its place (Rs 960 cr loss) about a 100 155mm Medium Artillery guns could have been purchased.[5]

Staffing, Supervisory costs and productivity–

Between 2011 to 2016, the supervisor to industrial employee ratio of OFB is1:1.41 (manufacturing industry standard being 1:5), accounting for 65% as against Industry standards of 30% of the total labour cost of the OFB and account for 42% of its overhead costs. The average man hour utilisation of the OFB has been around 127% (27 % additional salary bill for over time) whereas, the average machine hour utilisation has been around 75% for the same year. Lack of stability at the apex level is evident as with the average tenure of Chairman OFB, (usually the senior-most officer of the IOFS) from 2015 to 2020 has been 8.7 months.

Shortcomings of Ordnance Factories

K Subrahmanyam [6] stated OFs are not the most efficient organisations except when the country is at war when their productivity rises to match patriotic feelings. Lack of institutionalised planning and exports also leaves the labour force with a sense of insecurity from possible retrenchment. Intermittent demand and supply orders result in problems of personnel supply which is affected by an ageing labour force, lack of specialised skills at all levels, and non-competitive wages and a poor recruitment base. (Behera, 2016)[7] OFs being a departmentally run organisation, do not follow commercial accounting procedures, and are not open to public scrutiny. Limitations on financial powers at the Factory level force senior manager to look back towards the OFB or the MOD, causing crucial time delay in decision making and diffused accountability. Accustomed to licensed production, they have failed to absorb technologies and execute orders in a timely manner.[8] The situation has now resulted in companies having “many employees, but with skills and expertise in short supply”. Upgrade of plant and machinery with the capability to modify production lines to changing product, demand will, and require agile minds, policies and organisational structures.

Technology denial regimes and  low priority to defence research earlier, resulted in gaps in technology, forcing India to rely upon licensed production – temporarily equipping requirements of the Army. The 21st Scientific Advisory Committee to the Cabinet 2016 said that DPSUs and OFs never set up any formal technology absorption centres to receive technologies from OEMs. OFs have a poor record of TOT absorption, particularly in respect of critical components, making them import dependent. The negotiated transfer agreements have failed to include important provisions enabling complete absorption, transfer of machineries and skills. The inability to execute TOT of the Bofors gun is a case in point. Offset absorption roadmaps need to be carefully created by all OFs and monitored in detail. The focus is on meeting production targets, neglecting product support.

Ripe time for Change – Corporatise

Various deficiencies like poor quality, high cost of product, production delays, enormous overheads due to on maintenance of estate, supervision, indirect labour charges, the OFs are dogged by low financial delegation, long winded governmental procedures, low technology absorbing capacity, low internal R&D capability – all these require dramatic changes.  There is need to upgrade outdated plant and machinery. Quality improvement is possible through greater dependence on automation and adoption of Industrial Revolution 4.0, smart manufacturing techniques ushering in IOT, additive manufacturing (3D printing), AI and robotics. OFs need to have the freedom to enter into joint ventures with Indian and foreign companies to bring in international best practices and managerial flexibility  to  make quality products competitively placed in export markets.

In Israel, companies such as IMI, IAI and Rafael, have evolved from slow moving conglomerates to now agile and profit-making industrial giants globally. An arms embargo by the sole provider of its arms, France, during the 1967 war, catalysed the change for domestic companies, whose output quadrupled over a period of three years driven by domestic demand. However, after the peace accord with Egypt, domestic demand declined substantially, and an export orientation was necessary. This came about with a slew of measures, including downsizing and corporatisation of State Owned Enterprises (SOEs), even though it resulted in layoffs.

Some IOFS officers are the best in the field of production management but feel constrained by departmental procedures and worker union dynamics. It is evident that production targets and quality will continue taking a beating at the cost of these issues. The argument that OFs retain surplus capacity to cater for emergent situations appears to be hollow in the face of the strike called by worker unions despite ongoing security threats. Besides, can the nation afford this drain on the exchequer?

The Standing Parliamentary Committee on Defence observed that cost cutting measures are required to make the OFs more competitive in global markets, and even against domestic private sector. Improvement in technical and financial qualifications will help improve quality and boost export, the latter being essential to keep order books full and the machines running up to optimal levels. Financial propriety needs to be tracked. Trained manpower from the existing pool needs to be retained and upskilled. If required re-skilling will be necessary. The initial hesitation of OF workers to undertake this training is understandable; but should they refuse to do so, they would have axed themselves by proving to be incapable and hence dispensable. Empowering the OFB is a government responsibility, but this is possible only when they are prepared to empower themselves with better efficiency through corporatisation.

However, OFs lack the professional attitude of a production organisation – driven neither by profit motives (production shortfalls, poor quality and low fiscal prudence) nor genuine security concern (evidenced by their ill-timed call for strikes). With these the OFs have virtually reached their nadir and need urgent corporatisation. Even as corporates, they will have to perform, or perish in the face of national security imperatives.

End Notes

[1] Indian OF website, 2019

[2] The Week, end-August 2020 quotes MKR Pillai, Vice President AIDEF

[3] Manish Kr Jha, ‘Reforms Or Just A Rejig?’, Business World, 06 Jun 2020 available at http://www.businessworld.in/article/Reforms-Or-Just-A-Rejig-/06-06-2020-194472/

[4] Report, 43rd Report to Standing Parliamentary Committee on Defence, 16th Lok Sabha, 2017-18, Part1, Chapter 2, Paras 8-26. Retrieved from http://164.100.47.193 /lsscommittee/Defence/16_Defence_43.pdf

[5] https://www.hindustantimes.com/india-news/27-jawans-killed-in-6-yrs-due-to-faulty-ammo-army-report/story-S3NoVBqSStzonfRwDnAccM.html

[6] Subrahmanyam K. (2009). The Indian acquisition system: Improving oversight and the system, Defence acqisition-internatioanl best practices, Pentagon Press, Retrieved from https://idsa.in/system/files/ book/ book_DefAcq .pdf pp340-356.

[7] Behera,L.K. (2016) .DPP-2016: An Analytical Overview, IDSA Special Feature . Retrieved from https://idsa.in/specialfeature/dpp-2016_lkbehera_120416, April 2016, Best Practices, pp113, Pentagon Press, Delhi

[8] Panneerselvam, P. (2016), Feb 12. Restructuring Indian Defence Industry: Enhancing the Role of the Private Sector”. National Defence and Aerospace Power. Centre for Air Power Studies. Issue Brief 114 / 16.

 Maj Gen (Dr) Pawan Anand, AVSM (retd) is a Distinguished Fellow with the USI of India. He did his Doctorate on indigenisation of India’s defence industrial base from Symbiosis International (deemed) University.
Article uploaded on 16-10-2020
Disclaimer: The views expressed are those of the author and do not necessarily represent the views of the organisation that he belongs to or of the USI of India.