India's Ordnance Factory Board restructure is a game changer

All 41 current factories under the OFB will now be subsumed under one or the other of the seven new public sector companies.

The Indian government’s decision to scrap the Ordnance Factory Board (OFB) – which was first set up by the British in 1775 – and pave the way for a corporate entity, is a game changer for the Indian defence industry.

Indian Defence Minister Rajnath Singh announced on Wednesday that the OFB will be replaced by seven new defence public sector undertakings, and assured all employees that their service conditions will remain the same.

All the 41 current factories under the OFB will now be subsumed under one or the other of the seven new companies, all 100 per cent government owned public sector undertakings (PSU). The PSU entities will cover a separate sector.

Seven different sectors

There will be the ‘Ammunition and Explosives Group’. The function of this entity will be to produce ammunition of various caliber and explosives. These will be both for the Indian market as well for exports.

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The `Vehicles Group’, according to officials, will be engaged in the manufacturing of the defence and combat vehicles which include Mine Protected Vehicles, Trawls, Tanks and BMPs.

‘Weapons & Equipment Group’ for the production of small arms, medium and large caliber guns and other weapon systems. This will help in meeting the domestic demand as well as product diversification.

And the rest of the four companies are expected to be: Ancillary Group; Opto-Electronics Group; Troop Comfort Items Group; and Parachute Group.

Benefits for workers

“The move was earlier resisted by the workers, who have been now pacified by announcements that the benefits and pensions for those already employed at the OFBs will continue,” said Mathew George, aerospace and defense analyst at GlobalData.

“This is a short-gap measure to ensure that production and development is not affected in the over 200-year-old board that has 41 factories across India. As of now, the seven entities will focus on specific areas of development and convert the old, single large body into modern, efficient and specialized entities,” he said.

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Indeed, the historic decision is aimed at turning the Ordnance Factories into assets which are profitable; which will help in improving the quality of the platforms and products and are cost effective. The restructuring is expected to help in enhancing competitiveness and further deepening specialisation in the product range.

Global opportunities

With the Narendra Modi government focusing on export of defence items and platforms that are Made in India, the new structure will help in overcoming several shortcomings in the existing system and create opportunities in the global market. The major customers of these OFs are the Indian Armed forces. Other customers include Paramilitary Forces; State Police Forces who procure their clothing, vehicles which are bulletproof and mine protected from the OFs. The forces also procure their small arms and ammunition from OFB.

“It is going to be a mammoth task ahead for the companies to function as independent, economical bodies and to restructure themselves to achieve efficiencies,” said George. “Going ahead, with efficient production, increased specialization and a need to function as independent companies, the cost to the government is expected to come down once the present liabilities are completed. On the other hand, there will be demand for quality products from India’s security forces, which may benefit from shorter lead times and cost efficiencies. But the larger question will be whether the restructured entities will have the ability to compete globally and win those all-important export orders that will determine whether this costly restructuring will be beneficial in the long-run or not,” he said.

With that major challenge facing the restructured entity, an Empowered Group of Ministers has been constituted under the Defence Minister, comprising the home minister, the finance minister, and the minister for labour and minister of state in the PMO.