December 05, 2021

Plan to destroy Indigenous Defence Manufacturing Capability

R Karumalaiyan

CENTRAL government issued an order on September 24, 2021, to dissolve the ordnance factory board(OFB) with effect from October 1, 2021. Accordingly, the OFB with its inter-dependent and inter-connected network of 41 ordnance factories would be converted into seven separate companies registered under the Companies Act and would be duly listed in the Stock Market.

The ordnance factory board is the largest government-owned conglomerate of 41 Indian ordnance factories plus nine training institutes, three regional marketing centres and four regional controllers of safety- called non-production units, under the control of the department of defence production, ministry of defence. The ordnance factories have been catering to the needs of the armed forces for more than two centuries by providing them with indigenously produced arms, ammunition and equipment and weapons.

The roadmap was conceived immediately after Modi came to power in 2014; the corporatisation scheme was rolled out with all precision when BJP got the absolute majority in Lok Sabha in 2019. Despite lockdown, during the peak of the first wave of Corona in May 2020, the union finance minister had announced the corporatisation of ordnance factories.

As per the order of September 24, the management, control, operations and maintenance of these 41 production units (ordnance factories) and some of the non-production units will be transferred to seven government companies. The newly created companies are: (i) Munitions India Limited, (ii) Armoured Vehicles Nigam Limited, (iii) Advanced Weapons and Equipment India Limited, (iv) Troop Comforts Limited, (v) Yantra India Limited, (vi) India Optel Limited, and (vii) Gliders India Limited (this is the “New DPSUs”).

The order envisages that the service conditions of the workers of ordnance factories will remain unchanged up to two years after corporatisation. This exposes the real game plan of privatisation of the corporatised entities within that period. Moreover, the central government has also decided to transfer, the management, control, operations and maintenance of certain identified non-production units of OFB like hospitals and schools and 3152.11 acres of identified surplus land at 16 production units of OFB to the directorate of ordnance. At any point in time, all these assets may be routed through the infamous national monetisation pipeline to private corporates.

Besides the general dangers and the attendant vulnerability in dismantling of our government-owned defence production units and leaving out our armed forces to rely totally upon private players for defence requirements, the proposed structural changes are fraught with inevitable operational problems resulting in a serious deficiency in an otherwise efficient production system under erstwhile OFB structure. The most important characteristics of the structure of ordnance factories in entirety are their mutual interdependency, backward integration in the production process of almost every item and the resultant system of mutually shared responsibility and accountability. This is going to be in total jeopardy and absolute mess owing to its dismantling into seven separate corporate entities, autonomous from each other.  

The OFB has created dedicated facilities not only for the production of finished stores required by the armed forces but also integrated in-house facilities for the supply of basic materials and sub-assemblies to avoid dislocations in the supply chain in terms of quantity, quality and scheduled timeline for delivery. Basic features of defence manufacturing in India also demand a reciprocally integrated and interdependent setup. It is required for fulfilling its committed responsibility towards the defence preparation of the country.

The official assessment by no less than an authority like OFB itself, on the very act of dismantling the fully integrated and mutually interdependent production system of the ordnance factories network and its separation into seven separate autonomous entities also could not deny the possibility of such retrograde disastrous eventuality. 

The OFB document on the anticipated challenges in the event of breaking up of the integrated set-up of OFB states, “it maintains a manufacturing set-up with strong backward integration. The backward integration is necessary given the complexities and peculiarities of defence technologies and the need to maintain defence manufacturing set-up at all times without commercial and profit considerations. And also, the peculiarities of the defence market like wide demand fluctuations, uneconomical quantities etc., do not create a committed vendor/supply chain. Any attempt to break these backward integration linkages would weaken the indigenous defence manufacturing set-up which in turn can adversely affect the complete supply chain and the defence capabilities maintained by the OFBs.”

Despite this warning, the corporatisation-cum-disintegration of OFB along with 41 production units has been envisaged without considering the entire complex supply chain of interdependence within ordnance factories system which is the lifeline to maintain the synergy as well as efficiency and time-line in the defence production. So the dissolution of OFB by the Modi regime has been done to deliberately dislocate and disrupt this lifeline of indigenous defence production network to pave the way exclusively for the benefits of private corporate masters, both domestic and foreign, of the present ruling dispensation.

Let us, for instance, examine the application of the concept of backward integration in the heavy vehicle factory (HVF), Avadi, Chennai and how that has been done away in this new scheme. The HVF, Avadi is manufacturing MBT Arjun Tanks, Ajeya Tanks and Chassis for Bride layer Tanks and overhauling of tanks. It sources all its supplies for manufacturing tanks from machine tools prototype factory, Ambernath, Opto electronic factory, Dehradun, engine factory Avadi and gun carriage factory, Jabalpur and other indigenous sources. That means to manufacture T-72 tanks it has backward integration with these units. Following OFB corporatisation, a new manufacturing entity called armoured vehicles nigam limited has been incorporated in which the gun carriage factory, Jabalpur has not been included despite having a direct and unavoidable supply relationship with the main tank manufacturing unit. The Jabalpur factory is producing indispensable items/components for the tank manufacturing. Its separation or exclusion from the just corporatised armoured vehicles nigam limited and placement in another different corporate unit will destroy the interdependency relationship based on mutually shared responsibility and shared accountability in efficient and on-time manufacturing of MBT Arjun Tanks or Ajeya Tanks and other finished armoured tanks for the use of our army. Who will suffer? The Indian army; who will gain or benefit from this unscrupulous exercise? The foreign tank manufacturers, since the army’s requirement, cannot wait for any reasons whatsoever.

Another more glaring example is the ordnance factory, Chanda which is manufacturing ammunition for T-72 tanks like heavy calibre gun ammunition, mortar ammunition, tank gun ammunition, mines, rockets, warheads of missiles, fuses, detonators and primers. For manufacturing all these ammunitions the ordnance factory, Chanda has got backward integration with ordnance factories in Kanpur, Itarsi, Bhandra, Ambajhari, Dum Dum, cordite factory, Aravankad, and gun and shell factory- Cossipore. All these units supply all the materials for manufacturing a variety of ammunition to be propelled from T-72 tanks in the Chanda factory. The OFB has created such interdependence among them. 

According to the corporatisation plan of OFB, ordnance factory Chanda is now being merged with newly created Munition India Limited along with only three units namely cordite factory Aruvankad, ordnance Factories at Bhandara and Itarsi. And the rest, viz., the ordnance factories of Kanpur, Ambajari, Dumdum and Cossipore have been separated and merged with different other corporate entities despite having their indispensable interdependency with the ordnance factory at Chanda for ammunition production and supply for the T-2 tanks. Such mergers, as well as separation exercise with altogether different corporate entities, will destroy the basic aspects that are the lifeline of defence productions – that is--the interdependency relationship based on mutually shared responsibility and shared accountability in efficient and on-time manufacturing of both tanks and the ammunitions to be fitted in the tanks.

Past experiences have proved that country’s private corporates are not competent and efficient enough in the fields of defence-related production work compared to the services and contributions of ordnance factories network along with existing functional defence PSUs in almost all fields of defence forces’ requirements.

It is pertinent to note the observation of the CAG in its report 36 of 2016 which says: “In respect of the procurement of military spares that were sanctioned by the commandment, CAFVD and supply orders were placed on private vendors. All these supply orders were cancelled from September 2011 to February 2012 mainly due to the failure of the (private)firms to supply the spares. Subsequently indents for the supply of all the 23 items were placed on ordnance factories in March 2012.”

By any stretch of the imagination, the corporatisation/the breaking-up of OFB is neither going to be even a wise commercial decision nor it would transform the newly created entities into profitable and professionally competitive.

Rather it would become a bonanza for private corporate, both foreign and domestic to do their arms trade without any hindrance in the defence sector. It is nothing but a philistine articulation by those in governance to finally destroy the well developed indigenous manufacturing capability of the country in respect of the defence sector's requirements and make the country much more dependent on foreign supplying agencies, even in most of the cases for after-sales servicing and regular maintenance of defence equipment.