Indian Defence

Will Corporatization Ruin The OFB’s Future?

Almost exactly after the year again the Modi Government again decided to go for the Corporatization of the OFB. This time the announcement came from the Finance Minister Nirmala Sitharaman in a press conference on 16th May 2020 stating that the “The step in defense-related production reform is to improve the autonomy, accountability, and efficiency of ordinance supplies which are being made by the ordinance factories and for this, we intend to corporatize the OFB’s”

She also added that “Here, corporatize doesn’t mean privatized, we want them to be better managed and we want them to be listed on stock markets, and through this, the processes, decision making, and the output will be transparent to Indian citizens” Here, she told even press that to underline the word corporatize and understand the difference of it with Privatize

Now, here are some strong words by the government, even though emphasizing the words, the Unions of Ordinance factory board called strike and termed the announcement as the betrayal. This was said because a year earlier in August 2019 the Modi government announced the same and due to a very long strike(Almost a week) by the unions the government had to call this decision.

Here the Unions included the All India Defense Employees’ Federation (AIDEF), Indian National Defense Workers’ Federation (INDWF), along with the RSS-affiliated Bharatiya Pratiraksha Mazdoor Sangh (BPMS). The Confederation of Defense Recognized Associations (CDRA). All of them termed this move as a “Betrayal” by the workers’ bodies, which were assured by the Secretary of Defense Production (DP) that “no final decision” has been taken, following a strike of August.

As of now they opposed the move and informed the government that they would be going on a strike on 12th October 2020. Also, they said that the government chose the perfect time as every employee would be at home due to the pandemic and no one would be off to reply or rebel. “This time, we don’t want any assurances but a categorical withdrawal of the corporatization proposal,” said C Srikumar, general secretary, AIDEF, adding, “Despite multiple meetings, our demands remain unconsidered.”

Now coming to the point of why there is a need for doing Corporatization? Why put a strategically important asset in public? Is the government lacking money?

Well most of us know what is the reputation of OFB in the eyes of Army and Defense Analysts. Just by saying the product is from OFB, a Military person would think before using it. Such is the trust and reliability of OFB products. Just for heads up, in recent, Defense Squad told in Update that there was a barrel blast from ATAGS, no doubt the inquiry has not concluded but most of them think it was the faulty ammunition and was manufactured by ???. Yes, you guessed correctly, the same happened with the Excalibur Ammunitions which goes in M777 Howitzer, and ammunitions made by OFB. The last nail in the coffin is the very Infamous INSAS rifle which comes under the list of the world’s worst rifles. I am not going into the problems, for that, we have a separate video that would give you a better idea.

To know about INSAS rifles

Current Problems With OFB

  1. Total monopoly as an item if available with OFB cannot be procured from other places
  2. Large workpiece inventory
  3. No autonomy
  4. Very diversified supply chain(Means a part gun made at one place and other at other OFB)
  5. Large time for collaborations
  6. As attached to ministry, a change in ministry leads to direct change in working
  7. Huge production delays (orders of 2010 are also pending)
  8. Very less productivity (The 49% of ammunition to demand is only delivered to the army)
  9. Overall less production (if the war-like situation arises, a steady production cannot be guaranteed)
  10. Large unused assembly lines
  11. Large Waste
  12. Tonne’s of Rework as sub standardized good needs to be repaired
  13. No accountability just blame games (No one takes responsibility as QA and Production doesn’t go hand in hand)
  14. The KNOW-WHY is less (Design is done at DRDO and made in OFB)
  15. Headquarters in Kolkata
  16. No customer satisfaction ( The army is very Unhappy with Quality)
  17. No embracing of Modern work Culture and totally staying in Comfort zone
  18. Not focusing on important combat equipment manufacturing
  19. Not any leadership from the Top level

These are some mentioned and known, and chances are there would be many more to be unknown.

The Difference Between Corporatization and Privatization:

In corporatization, the Major stake of the company is under the government but it is also listed on stock markets, so it works more like a PSU main example like BEL, BDL, HAL, etc. And in Privatization, the whole process comes under a private entity and works as a private entity. So in Corporatization, it will become a Public Owned Organization.

Now when the OFB will become a Corporatized it will give them additional autonomy. As of now, OFB doesn’t have total autonomy over its products. As we call know, in the corporate world the Customer is King, and if that unhappy the company would be at the loss. In today’s scenario, since OFB has a monopoly and attitude, nobody has a choice to go elsewhere. Here OFB’s attitude towards quality is really bad, they simply don’t care because they know whatever they’ll make is to accepted by the army and They cannot even complain, and if did who cared there.

Due to this army suffers a lot, now Coming to the R&D part, the OFB has got a tremendous amount of experience in making stuff but not that much in designing and designing comes under DRDO so there is always a finger pointing towards each other in case of a faulty product. If corporatized the OFB’s Know-How will be combined with Know-Why and this deadly combination will make OFB’s the biggest supplier.

People can see the USA, most of the Defense equipment, from grenade to Gigantic aircraft carries, with full quality assurance is made by private companies with most secrecy. Take F-35 Lockheed Martin, Prat, and Whitney, General Electric. People’s response to this argument is looked at China, they got it under government but what they don’t see is that its a communist state, they have prolonged work hours with high targets and no freedom. Here given freedom due to democracy, it’s really getting misused.

Thinking of side of cost overruns, those who know a bit if Industrial domain and commerce domain, there is a term Inventory. There are 4 types of it

  1. Raw Materials
  2. Work in Progress
  3. Finished goods
  4. MRO(Maintenace, repair, overhaul)

More than half the inventory (52%) was the store-in-hand procured for the manufacture but not used within the year by the factories. Work-in-progress (unfinished items lying on the shop floor) constituted 32 percent of the inventory.  A total inventory of Rs 1,055 crore pertains to slow and nonmoving items, which were still lying for further disposal. This overall price of a product increases causing inflation. Over a time span, the inflation rate of the Foreign OEM was about 10 percent. For the same period, the OFB inflation rates were about 100 percent!. An example is the T-90 made by OFB costs 50% more than imported from Russia.

The Comptroller and Auditor General (CAG) has repeatedly cited overpricing by OFB beyond what is commercially available off the shelf. CAG reports also point out the poor quality of OFB products, which is why the Directorate General of Quality Assurance (DGQA) which was to come under HQ Integrated Defence Staff as recommended by the Group of Ministers, was retained by the  MoD.

Then Why Doing It Now?

Well, let’s know when this was actually planned. Multiple government-appointed committees in the past suggested corporatizing OFB: one, TKA Nair Committee recommended converting OFB to Ordnance Factory Corporation Limited in 2000; two, Vijay Kelkar Committee corporatization of OFB with ‘Nav Ratna’ status, like BSNL in 2006; and three, Vice Admiral Raman Puri Committee (2015) recommended corporatizing OFB and splitting it into 3-4 segments – each specializing in a distinct area like weapons, ammunition, and combat vehicles.

We have known the Modi government for bringing a revolution in Defense Industry, Make In India, Aatmanirbhar Bharat, PPP models, 101 Negative list embargo, Offset partners all were at a tremendous rate by them. And they realized the importance and hidden potential of this more than 200-year-old organization and its problems.

Then Why Workers Are Opposing It?

I tried to get to the roots of this and also heard interviews of Consultants of OFB and main chairs of OFB. They are actually in support of this, even the Army was very happy with this news. Thing is after being listed in the Stock market, a company has to perform otherwise it will go bankrupt. This will show the public how the OFB is doing. If then, faulty equipment delivered there will be a cancellation of contracts and this will show in the accounts as well. As of now, there is no delay penalty for OFB, after this there will be, leading to timely delivery of products.

But workers are not budging, the primary reason is ill thinking and for years they have been there in the comfort zone. They love delays, they love traditional methodology. If corporatized the management will change and they have to work. They also think that a person will lose their jobs, they think that converting into PSU will result in “Hire and Fire” terminology. Even though o

We all know that things don’t work that way. “Hire and Fire” are in privatization in Corporatization the people will be the same also. Only the SOP will change, and culture will change. It’s just that, once people become lazy, have no enthusiasm, and want to live in their comfort zone, they will always want to stay there. And this corporatization will give a big blow to it.

Other arguments are that after corporatization they won’t receive constant orders. Now for a second, thinking of the army as a customer, we want to give our army the best Equipment possible at a possible cheap price. But after corporatization, it will not be necessary for the army to give orders to OFB. There will be an open market for filling tenders by both, and this will result in competition and this is what OFB workers don’t want, they want to remain a monopoly which is actually very dangerous for defense production.

That is the very reason that the defense employees are opposed to the corporatization of OFB, Srikumar(AIDEF) said. “The employees are not against bringing competitiveness and self-reliance to ordnance factories. But any restructuring required to achieve that shouldn’t change the status of the organization,” he added.

The above line seems acceptable but thinks this way, there was a declaration of 275 noncore items by the government a year ago in which it will no be necessary for the army to purchase that product from OFB, they can purchase it from outside, but this didn’t change the work culture, quality and Productivity till date, what is a chance it will change in future.

Problems To Be Faced

As of now, the government has hired a consulting committee that will map the full road of converting this PPA(Partially performing asset) into India’s biggest valuable DPSU. Implementation of this vital piece of reform measure considered critical to India’s overall defense preparedness as well as self-reliance. The transformation will improve flexibility and help in better decision-making in the functioning of ordnance factories, including creating space for joint ventures with foreign firms. To quell employee anxiety on job losses and related issues, the ministry proposes to safeguard their wages and retirement benefits.

There is a strong case for the MoD to do this. But Mere reform of the OFB alone won’t do. The MoD must also undergo a concomitant reform.  The OFB is a national strategic asset with eroded roots. It needs a rebuild. If the rebuilding is done effectively, India will benefit immensely. It is time the OFB sheds its rust bucket image and becomes India’s growth engine.

It would be imperative that the headquarters of OFB shift its base from Kolkata to New Delhi. This will facilitate frequent interaction with the management, Board of Directors, and the Stakeholders as also lead to a more effective decision-making process in the larger interest of the Nation.

Conclusion

This Corporatization will be a boost to Make in India and Aatam Nirbhar Bharat and putting it in the stock market will bring the more FDI( As the bar has been raised to 74%) And the Autonomy of OFB will definitely increase the Number of Items in Negative embargo which at present stands at the number of 101.

But the Clap is not possible with a single hand. The OFB personnel need to support it, because if they didn’t and after Corporatization if the attitude of OFB remains the same, then it will come crashing down more than the current rate of collapsing.

Nirav Kotak

A Mechanical Engineer and a Defense Enthusiast wanting to share knowledge and learn more from others as well.

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