Corporatization of Ordnance Factory Board

• 14 Oct 2020

Why in News

The Centre’s move to corporatize the Ordnance Factory Board (OFB) has been strongly opposed by the trade unions.

Key Points

• OFB:
  
  • It is an umbrella body for the ordnance factories and related institutions, and is currently a subordinate office of the Ministry of Defence (MoD).
    
    • The first Indian ordnance factory was set up in the year 1712 by the Dutch Company as a GunPowder Factory, West Bengal.
  • It is a conglomerate of 41 factories, 9 training Institutes, 3 regional marketing centres and 5 regional controllers of safety.
  • Headquarters: Kolkata
  • Significance: A major chunk of the weapon, ammunition and supplies for not just armed forces but also paramilitary and p744olice forces comes from the OFB-run factories.
  • Production includes: Civilian and military-grade arms and ammunition, explosives, propellants and chemicals for missile systems, military vehicles, armoured vehicles, optical devices, parachutes, support equipment, troop clothing and general store items.
• Corporatization:
  
  • In September 2020, an Empowered Group of Ministers (EGoM) for Corporatization was constituted under the chairmanship of the Defence Minister.
    
    • Aim: To oversee and guide the entire process, including transition support and redeployment plan of employees while safeguarding their wages and retirement benefits.
  • The corporatization will result in the conversion of the OFB into (single or multiple) fully (100%) government-owned entities under the Companies Act, 2013 like other public sector undertakings.
• Reasons for Corporatization:
  
  • A performance evaluation by the Comptroller and Auditor General (CAG) in its report for 2019 on the OFB highlights a few of the lacunae, which ails this organisation.
    
    • Overheads (expenses not directly attributed to creating a product or service) constitute a staggering 33% of the overall allotted budget for the year.
      
      • The major contributors being supervision costs and indirect labour costs.
    • Delayed Production: The Ordnance factories achieved production targets for only 49% of the items.
      
      • More than half the inventory (52%) was store-in-hand, procured for manufacture but not used within the year by the factories.
  • The Atmanirbhar Bharat initiative, also calls for the Corporatisation of OFB for: ‘improving autonomy, accountability and efficiency in ordnance suppliers’.
• Apprehensions:
  
  • One of the main apprehensions of the employees is that corporatisation (ownership and management lies with the government) would eventually lead to privatisation (transfer of ownership and management rights to the private player).
  • The new corporate entities would not be able to survive the unique market environment of defence products that has very unstable demand and supply dynamics.
  • Restructuring will result in greater autonomy and lesser government control over the corporation but there is a fear of job loss.

Way Forward

• The corporatisation of OFB is likely to transform ordnance factories into a modernised, state of the art facility with flexible and better decision making in its functioning.
• Currently the MoD has deferred the ongoing process till the talks with the unions protesting, reach to a meaningful conclusion. This is a welcome step.
• The broader consultation, on all the major concerns, is essential for sensitive issues like corporatization. Here, the need is to have a reflective road-map for the plan. This can help to ease the apprehensions regarding the corporatization.

Source: IE