Debate: Army's Internal Report to MoD is a Clarion Call for OFB Corporatisation

The long-standing complaints against OFB for its failure to produce quality products, especially arms and ammunition for the military need serious consideration. Both veterans and a serving officer have voiced their opinions in this ballistic debate on OFB corporatisation.


Debate: Army's Internal Report to MoD is a Clarion Call for OFB Corporatisation

‘Mission Victory India’ reproduced an internal report formulated and presented by the Indian Army to the Ministry of Defence (MoD), stressing on the need to corporatise the Ordnance Factory Board (OFB). The report echoed long standing complaints of inefficiency and lapses in the functioning of the OFB and its failure to produce quality arms and ammunition for the Armed Forces.

Some harrowing data highlighted in the report calls for serious introspection and debate. Going by the data presented, the OFB sees at least one accident per week. These recurring issues have led to “injuries and deaths of soldiers.”

Other than the data compiled on OFB related accidents and fatalities, the report also highlights the harrowing wastage of ‘assets’ which according to the report have been routinely disposed of prematurely costing a hole in the taxpayers pocket.

According to the report funds spent on faulty ammunition between 2014-2020 could have been used to buy at least a hundred 15mm medium artillery guns; something which the nation urgently needs should the situation with China escalate into a 'shooting war.'

Given the data points presented, team MVI called on the insights and expertise of both the veteran and serving fraternities to share their inputs on the state of affairs at the OFB and suggest a way forward, in the larger interest of the nation and the soldiers on the ground.

The Indian Army's internal report to the MoD can be read here: A Case for Corporatisation: OFB Needs Major Overhaul

"There was a time when the fear was so strong that tank crews used to visit the mandir every time they went into a tank to fire at the ranges."
Tanks for the Indian Army's Armoured Corps being manufactured at an Ordnance Factory; File Photo

Responses by Veterans and Serving Officers

Lt Gen (DR) VK Ahluwalia (Retd), Dir. CLAWS, Author & Academic

"Perhaps, corporatisation would be the next best solution to transform the ailing ordnance factories, to make them efficient and effective."

India has one of the largest Defence Industrial Base (DIB) among the developing countries, with 41 Ordnance factories, 52 Defence Research and Development Organisation (DRDO) laboratories, and 9 major Defence Public Sector Undertakings (DPSU), and each DPSU with several subsidiaries.

We would soon be celebrating the 75th Anniversary of our Independence. It is ironic that we are still importing about 60 percent of our defence requirements, including basic weapon systems.

According to Stockholm International Peace Research Institute (SIPRI) 2020, India has been the second largest importer of arms during the period 2015-2019, valued at 9.2 percent of the global share of imports. Surely, it speaks poorly of our DIB.

For the large size of Ordnance Factories (manpower, resources, area allocated and location) and expenditures involved therein, they have certainly not met the requirements of our armed forces. They have been a huge drain on our exchequer.

Almost all the Ordnance Factories are beset with drawbacks such as: underdeveloped organisational structures, cost overruns, time overruns, poor quality of products, poor work culture, disproportionate extra manpower, and lack of transparency and accountability.

It gives an impression that either these organisations have not been working with clearly defined end goals and deliverables, or they have not been made accountable.

One feels sad to see the workers unions of these organisations being hyper-active to go on strike, at a critical time when they should actually be increasing their production capacity manifold to meet the operational requirements. On several occasions, we continue to hear of material failures and accidents during field trials and firings at the ranges.

While the country is keen to develop the defence industry into an export oriented industry, such firing accidents and casualties are detrimental to the larger interest of the DIB and the country. In fact, it results in loss of credibility and reliability of our defence industry.

Every frontline soldier, who is deployed on the borders or is combating insurgency/terrorism, should feel inspired and have confidence in the country's DIB. Sadly, it is not so.

Directorate General of Quality Assurance (DGQA) is equally to blame, as they have not been able to ensure the desired quality of arms, ammunition, equipment for domestic requirements, leave alone achieving international standards.

DGQA should be accountable to the users, more than any other organisation. Given their performance and output over the years, these organisations require 'transformation' and not cosmetic changes.

While the government would do all it can to protect the interests of the employees of the ordnance factories, some of the ordnance  factories, which have consistently shown no improvement (remaining as Loss Making) over the past ten years, may merit progressive closure.

Although it is a difficult task to achieve, but, by doing so, we will at least send a strong message to all stakeholders, and make a beginning to recognise merit, and simultaneously address the faultlines in the system.

Under the current circumstances, what else can be done to revive the ordnance factories? Perhaps, corporatisation would be the next best solution to transform the ailing ordnance factories, to make them efficient and effective.

As OFB has adequate space and reasonable infrastructure (unutilised), and as part of corporatisation to make these industries profitable, some of the measures which could be considered are:

Joint Ventures with private companies in India and Abroad to allow seamless transfer of technology and thereby ensuring better quality of weapon systems and equipment;

Sharing of existing testing facilities such as DRDO Labs of the government with the private companies for various projects in order to avoid delays and assist in quality production of Defence Equipment;

Setting up of Joint Ventures with Corporates to manufacture equipment of international quality in order to encourage export of Defence Equipment so that incentive is provided to the private sector to invest in Defence Production, as has now been allowed by the latest rules of MoD;

Additional incentive and tax benefits from the government to Micro Small Medium Enterprises (MSME) for production of sub-assemblies of various major Defence Equipment Production in order to set up long term assembly lines of sub-assemblies and spares available locally;

Research to be encouraged in the Private Sector by the Government by giving special incentives and tax breaks to companies developing Defence cutting edge technology for Defence Equipment Production in the Country; thereby, setting up a Defence Production Infrastructure and Ecosystem for Long term Production as well as export of Defence Equipment.

Provisioning of incentives and facilities by the government should be subject to the industries meeting the stringent conditions of 'Performance audit.'

Lt Gen PR Shankar (Retd), Former DG Arty, Defence Analyst, Prof. Aerospace Dept. IIT-Madras

"Corporatisation is the minimum reform...If corporatisation is resisted, (Govt.) may rely on the private sector to meet its needs."

There is absolute clarity that OFB is beset with major problems. The foremost amongst them being poor quality, high cost, total lack of accountability, inordinate delays and a very poor work culture.

The Armed Forces have never been satisfied with the output of the OFB. Very specifically the ammunition produced by the OFB is often unreliable, unsafe and has lower than specified shelf lives.

Resultantly huge quantities of ammunition are destroyed or rendered non-operational. It adversely affects operational readiness, national security is jeopardised! This situation is unacceptable, it must be arrested.

There is no doubt that reforms are necessary. Past government committees even recommended full privatisation and breaking up of the OFB. Corporatisation is the minimum reform.

It is unacceptable that OFB unions are preparing to strike work when the nation is almost at war. This is the time when they should be standing behind the Armed Forces and ensuring that frontline soldiers have enough clothing, ammunition, weapons, guns and missiles to fight adversaries. The government should ban such strikes at this time.

Are the workers being instigated by party politics or forces inimical to the nation? Is there a Chinese hand behind the strike? There is obviously more to it than meets the eye. The worker unions should reflect – can the Armed Forces go on strike due to delayed supply of substandard ammunition and other warlike stores?

OFB has not improved despite huge effort in the past at internal reform. If this situation continues, the Armed Forces will refuse to use substandard OFB products. Increasingly the Government will not be able to place orders on OFB on a nomination basis. If corporatisation is resisted, may rely on the private sector to meet its needs.

There is no choice, the management and the workers of the OFB need to see corporatisation in the correct perspective. Corporatisation does not mean that their jobs are being taken away or their livelihood is at stake. The idea is to improve the efficiency and image of the OFB, which is at the rock bottom.

There are, however, some issues involved. The workers need to be reassured and their fears allayed. Their jobs will not be lost. Reforms will only lead to better and enhanced capacities to result in an 'Atma Nirbhar Bharat' and more jobs.

The second issue is to deal with the management which consists largely of the The Indian Ordnance Factories Service (IOFS) cadre. These officers might not fit into a corporate entity. Hence some options of lateral entry into other government departments have to be thought of while fresh blood is brought in.

People who wrote previous reports on reforming OFB are still in circulation. They should steer and execute what they had recommended! All stakeholders must be part of the reform. Reluctance of workers seems to be the fear of the unknown.

A major problem of the OFB is the disconnect and insensitivity towards end users. A greater connect between the Services and the OFB must commence.

The OFB is a national strategic asset with eroded roots. It needs a rebuild. If the rebuilding is done effectively, India will benefit immensely. To quote an equivalent, the ‘’State-Owned Enterprises’ in China used to be called their ‘Rust Buckets’ till the 90s. After reformation, they are now the engines powering China to superpower status. It is time OFB sheds its Rust Bucket image and becomes India’s growth engine.

Head over to 'Gunners Shot' for all things defence by Lt Gen PR Shankar

Lt Gen PC Katoch (Retd), Ex-Special Forces, Author & Defence Analyst

"We continue to be the second largest arms importer in the world despite having 82,000 OFB employees and 41 factories."

Previous attempts to corporatise the OFB did not succeed because of stiff opposition from workers unions like Indian National Defence Workers’ Federation (INDWF) affiliated to Congress, All India Defence Employees’ Federation (AIDEF) affiliated to the Left and Bhartiya Pratiraksha Mazdoor Sangh (BPMS) affiliated to BJP – all under the umbrella of Confederation of Defence Registered Associations.

Strikes by these unions cause loss of thousands of crores of rupees to the exchequer, halting defence production and adversely affecting defence preparedness. While some of these strikes were politically motivated, the main fear of the workers has been loss of jobs.

Another unexpressed fear was change in work culture from the current laid back to hard work under more efficient systems. Despite government assurance of protecting the salary and pension of existing employees, workers unions continue to oppose corporatisation.

One reason is different political affiliations of the defence workers unions leading to instigation by political parties in the opposition.

Apparently, they are also supported directly or indirectly by the bureaucracy too which is substantiated by the fact that OFB is directly under MoD but we continue to be the second largest arms importer in the world with 82,000 OFB employees and 41 factories.

Successive reports by the Comptroller and Auditor General (CAG) have reported adversely on functioning of the OFB, like: largely poor quality sub-standard products; time delays; high overhead charges; minimal innovation and technological development; overpricing; endemic corruption; and poor work culture.

Obviously, the system needs major systematic correction in ethos, leadership, professionalism, accountability and integrity.

Another important requirement is to examine the organisation of the Department of Defence Production (DDP) within the MoD which is overstaffed with civilians who are largely unproductive having little expertise in defence production.

These individuals need to be replaced by selected personnel from the Army, Navy and Air Force to ensure meeting delivery goals and better integration.

The need to downsize DDP, merging required elements with the Department of Military Affairs (DMA) and shifting balance elements to the Ministry of Industry and Commerce should also be examined.

The DGQA should be placed under Headquarters Integrated Defence Staff (IDS) as recommended by the Kargil Review Committee and follow up Group of Ministers reports. Alternatively, DGQA. It is the private defence industries that are meeting national needs the world over.

Corporatisation therefore must be complete; vertically and horizontally. All stakeholders including the Armed Forces must be part of the corporatisation process. A major issue is the involvement of the military as the users. The placement of military officials at all levels including in decision making echelons must be examined.

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Maj Gen Anil Sengar (Retd), ex-ADG MF & Author

"It is high time that a suitable system of hybrid corporatisation be thoroughly studied and implemented that exploits the best of both systems."

The report on poor quality of ammunition by the army is neither breaking news, nor news. It is a well- known fact for decades. The only thing breaking about this is that the army has placed it on record, which should have been done decades back.

I will first start with the culpability of the army itself. Now that you are claiming that there is an accident every week, I have no words to describe the apathy of the army leadership itself which has been accepting such poor quality of ammunition and by extension accepting to get its men killed, fully knowing the pathetic state of affairs.

There was a time when the fear was so strong that tank crews used to visit the mandir every time they went into a tank to fire at the ranges.

The statistics of accidents are revealing. The DRDO/OFB combined were to produce a training round of T 72 AMK 339 ammunition. It was expected to be cheaper with the same ballistics so that you do not have to tinker with the fire control systems. Decades later, they were still groping in the dark with even the concept not understood.

During a conference, the Director of OFB stated that at least one per cent defects in ammunition should be acceptable. Going by this yardstick, an armoured regiment will have all tanks written off in a period of three years, going by the authorization of training round to a regiment, leaving aside the casualties.

In another incident, three decades after struggling with NAG missiles, the scientist briefing during the quarterly conference had not even heard of a term called Danger Area Template.

Now, the aspect of corporatisation. Government agencies in India by their character are inefficient in every aspect of functioning. The reasons are clear- guaranteed pay and welfare irrespective of performance. No accountability and the power of trade unions to bring the machinery to halt and the political gimmicks of votes.

Why do the IOFS cadres continue to get promoted despite the poor state of affairs? Why have the Secretary Defense Production and the Defense Secretary been asked questions?

Leaving the past behind, it is high time that a suitable system of hybrid corporatisation be thoroughly studied and implemented that exploits the best of both systems. The DPSUs have huge infrastructure that corporations cannot afford, however they have efficient business practices and technology that can be integrated into a win-win situation.

There are four major corporate houses who have demonstrated the ability to meet the requirements and there are more. They are, in no order of ability, Bharat Forge, Tata, L&T, Mahindra and many other Micro Small Medium Enterprises (MSME) who have accredited themselves but are languishing because of various policies and other challenges.

The aspect of reserves for war time, while true in theory is not insurmountable. When the country needs, everything will be gingered towards that goal. At the height of the Second World War, General Motors which was a vehicle production company was turning out one aircraft every seventy five minutes. Russia had developed the capacity of producing 2000 tanks a month. It is all doable in war.

What is required is a well thought through philosophy to get the best out of both models. I have no doubt that it will transform the OFBs.

OFB Manufactured 155 mm Howitzer 'Dhanush' on display at Def Expo; File Photo 

A Serving Colonel, Infantry

"These institutions (OFB) are now Beyond Economic Repair (BER). It is no longer advisable to sink funds into them or attempt their revival."

Nearly all PSUs in India, which were created initially in the Nehruvian era for self-sustenance are today loss making. Only a few like Anand (Amul) have remained competitive and have been able to maintain their profitability versus modernisation.

There is a very healthy organisational culture and people take pride in their company. 'Across the level professionalism' and 'organisational culture' ensure that Bureaucrats posted are not able to fritter away goals and targets.

The poor attention traditionally been paid to the defence sector accentuated with the incapacity of the uniformed hierarchy to take a stand has ensured the total demise of the Ordnance Factories.

These institutions are now Beyond Economic Repair (BER). It is no longer advisable to sink funds into them or attempt their revival. It will simply not happen.

The auctioning away of the assets and the factories to private bidders will not only make available the capital to pension off the workers and staff but will also give credible capacity to the bidders to manufacture defence products. It will reduce the gestation period for involvement of private players to produce the required ammunition.

A lesson must also be learnt from the manner in which Britain disposed of her public factories in the 70s and 80s. She made the workers and staff shareholders. Thus, they became directly linked with the profitability of the factories. Workers were even ready to accept a cut in their pay cheques as it improved profitability.

Privatisation is inevitable. This is the only remedy as far as quality is concerned, it is easier for the government to penalise a private player for non-adherence of contract rather than fire an IAS officer.

Also, it is far better (in the present scheme of things) to have the Indian Administrative Service (IAS) work in the direction the Army needs - meaning - it is easier for the Bureaucrat to make a private player accountable rather than be accountable himself.

Gp Capt TP Srivastava (Retd), ex-Instr DSSC, CDM, CAW

(Based on a letter to the PMO)

"The time is ripe to take stringent remedial measures in form of Closure of Non-Profit Making Ordnance Factories."

Fundamental precepts of governance are normally associated with positive actions. Negative actions such as denials/discontinuance of age-old practice rarely contribute towards improved performance, continued quality improvement and enhanced production.

But the recent decision of keeping Hindustan Aeronautics Limited (HAL), the only aviation behemoth of the nation, away from the ongoing Rafale deal has been one of the most remarkable and highly desirable decisions.

For defence equipment our nation has been and continues to be dependent on moth eaten and union-controlled Ordnance Factories and HAL.

It would be an enormous waste of time to list out their individual and cumulative failures over the last five decades. The time is ripe to take stringent remedial measures in form of closure of non-profit making Ordnance Factories.

Enough time and opportunities have been given to these establishments to prove their worth. Their continued and consistent accomplishment has been ‘Losses and more Losses’ with every passing year.

We are not able to arm our soldiers with basic weapons viz small weapons and world class rifles. In fact, I wonder if our ordnance factories can even produce and manufacture a spring needed for basic weapons. These establishments, barring a few, have done greatest disservice to the nation over the years gone by.

All ordnance factories put together do not produce any military hardware of international standards. Manned by nearly quarter million personnel (including casual employees), the industry fares poorly when compared with French Airbus industry and Marcel Dassault, which employ a mere 25% manpower as compared with Indian Ordnance Factories.

They produce Airbus 380, the largest commercial airliner of the world and Rafale, a world class fourth generation fighter.

The nation can ill afford to waste any more funds on maintaining these self-serving behemoths capable of producing nothing with which our soldiers can face the adversary with confidence.

If the Indian Space Research Organisation (ISRO) and Scanning Sky Monitor (SSM) development programmes can meet world standards, why cannot the same be emulated by HAL and the Ordnance Factories?

Our dependence on export of defence equipment continues to increase with every passing year. In the foreseeable future, we are unlikely to see any change. Shutting down loss making ordnance factories would be one small but extremely prudent step towards improving the performance of defence industry in India.

I am quite conscious of the fact that the DDP would oppose any such measure because their ‘empire’ would be threatened. But in larger national interest loss making Ordnance Factories must be shut down.

For Advt. Inquiries Contact Us At: colvinaydalvi@missionvictoryindia.com

Brig IS Gakhal (Retd), ex-RR Sector Cdr & Comdt Sikh Regt Centre

"There are no stakeholders in the entire decision making set up. These factories have a PSU and union culture, productivity and quality control are the least of their concerns.

The fault lies in the organisational structure of the MoD. There are no professional soldiers to staff the MoD. Instead we have a Secretary who heads MoD straight after his tenure in Women & Child Welfare or even Corporate Affairs Ministry.

As Field Marshal Sam Manekshaw very famously said the Defence Secretary may not know the differences between a mortar and a motor.

The 41 odd Ordnance factories are under the OFB ruled by the Secretary Defence production. There are no stakeholders in the entire decision making set up.

The Ordnance Factories have a PSU and union culture, productivity and quality control are the least of their concerns. Overstaffed, little accountability and firm orders from the services keep their pay cheques coming. There is no competition to help them improve.

Col VS Bhate (Retd), ex-AAD

"Unless our Quality Control Officers are strict and do not grant any deviations under any pressure this will not improve. This remains true even if the civilian sector is brought in."

Unless the vested interests in the DPP and OFB is/are not removed one cannot hope to see any improvements. This is sad but true! Unless our Quality Control Officers are extremely strict and do not grant any deviations under any pressure from MoD and more so Defence Production or any kind of local allurements/pressures this will not improve. This will be true even if the civilian sector is brought in.

Cdr Mukund Yeolekar (Retd), Editor-in-Chief Seagull Magazine, ex Principal Naval College of Engineering, INS Shivaji

"Only big private players can afford to invest and take risk in indigenous development which initially may not be profitable."

The designer (DRDO), manufacturer (Pvt or PSU/OFB) and end user (service) must work as a team in order to achieve the end result of the equipment/weapon system. They should not only possess ' know-how' but also ' know-why' to ensure reliable performance of every system/sub-system. The designer and manufacturer should also be involved in finalising SQRs.

The user should have or acquire deep technical knowledge (SMEs) of the desired equipment for its successful development. If this is done we can also improve on the imported equipment.

In some critical area’s original equipment manufacturers (OEM) do not part with technology and we have to accept whatever they offer with strings attached.

Else, we reinvent the wheel and become wiser after a long time which may be too late operationally. In trials of new equipment safety concerns have to be addressed but some calculated risk has to be taken. Expert audits of design, manufacturing processes (of bought out components and subsystems) and inspection schedule is a must.

Only big private players can afford to invest and take risk in indigenous development which initially may not be profitable. It should be borne in mind that all the equipment which developed countries possess have had their share of failures and accidents.

Cdr Ravindra Pathak (Retd), ESM Activist

"One of the offsets for heavy investment could be leasing of OFB properties to the private entities at low rentals."

Very few government managed factories and laboratories have been able to deliver. The reasons are many but mainly labour issues and lax human resource policies.

It would be better to outsource the requirement of defence forces to civil manufacturers who would find it lucrative if numbers are adequate and export is permitted. One of the offsets for heavy investment could be leasing of OFB properties to the civil (private) entities at low rentals

Conclusion & the Way Forward

The Army's recent internal report to the MoD calling for corporatisation of the OFB is fully justified on many counts; 82,000 OFB employees with 41 factories continue to exist despite successive reports by the CAG highlighting the adverse functioning of the OFB.

There is an imperative and inescapable need to critically review the entire functioning of the OFB and expenditure incurred on this set up by the government. over the past several decades.

Previous reports on reforming the OFB need to be revisited and reviewed considering the Army's recent call to the MoD for corporatisation. The time is ripe to take stringent action on a loss making organisation which has been resulting in colossal expenditure to the state exchequer for past several decades without meeting the minimum inescapable needs of the Army.

The long-standing complaints against OFB for its failure to produce quality products, especially arms and ammunition for the military need serious consideration.

The data on avoidable injuries and deaths of our own soldiers during 2014-20 is indeed alarming and calls for serious introspection by all concerned. The issues are too  critical and alarming to be left solely to the MoD! What better time to appreciate the critical needs of our Armed forces than the present one of heavy mobilisation of our forces against our chief adversary-China?

(This debate was compiled by Mission Victory India Co-Founder Aritra Banerjee. He can be reached on emails: aritrabanerjee@missionvictoryindia.com & aritrareporter@gmail.com. He can also be reached on his Twitter handle.)

For more defence related content, follow us on Twitter: @MVictoryIndia and Facebook: @MissionVictoryIndia


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