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HomeDEFENCECorporatization of the Ordnance factories - facts behind and the facade

Corporatization of the Ordnance factories – facts behind and the facade

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The exact recommendation of the Gen Shekatkar Committee to make the ordnance factories perform better is shrouded in mystery. It is not clear whether the Committee suggested setting up a new entity or redesigning the old but tried and tested model to meet the requirements of the Indian armed forces. Still the government went ahead and announced the corporatization of the OFB in August 2020.

Myth #1: The justification behind the corporatization of the Ordnance Factories was that it would make the turnover of ordnance factories reach Rs. 30,000 crores. Even in a presentation made before the Standing Committee of Defence in 2023, the new 7 DPSUs projected a turnover of Rs. 26,300 Crores in 2024 -25.

Reality: This hasn’t happened during the past year and a half. The turnover in 2021- 22 for all 7 corporations was only RS. 8686 crores. This includes the turnover during the first few months of the financial year when the 41 Ordnance Factories were operating under the OFB. The F.Y. 2022-23 figure will give a clear picture of the performance of the 7 defence PSU.

Myth #2: From day one itself, the 7 defence PSU started expanding their business, and started bagging big export orders.

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Reality: This is far from reality as this includes outstanding orders procured by the erstwhile OFB which were converted into deemed contracts valuing about Rs 70,776 crore. Even after the corporatization of the one-time ordnance factories, there is an increasing trend within the Armed Forces procuring things from the market without taking the DPSUs into confidence. The army recently placed an order for 12 Lakh newly designed digital Army uniforms without giving the opportunity to TCL to even compete with other vendors. Similarly, the Ordnance Parachute Factory wasn’t even invited to participate and place a bid as a possible seller in a deal to procure 350 free fall Parachutes along with complete accessories under emergency procurement through Fast Track Procedure (FTP).   

Myth #3: Six of the seven new defence companies started making interim profits during the first six months of business. The new corporate entities managed to amass a turnover of more than Rs 8,400 crore till March 31, 2022. This was a big achievement considering the value of business generated by the erstwhile OFB during the previous financial years.

Reality: This is a big bluff as this ‘profit’ does not take into account the amount of money spent to pay salaries to staff and purchase raw materials which were paid for by the government on behalf of the OFB because the financial year started from 1 April 2022, while the Ordnance factories continued to exist for up to seven months till October 1, 2022. Significantly it was agreed that the Armed forces would 60% advance at the time of placing the order and the balance 40% would be paid on delivery. Hence Rs 7,765 crore was credited to the new defence companies as a 60% advance even before the date of the commencement of business. Likewise, another amount of Rs 2,765.95 crore was released to the seven new companies for capital expenditure and equity.

Also Read: Ordnance factories- what if it turns out to be an error of judgment?

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Myth #4: Within a short spell of time the 7 PSUs were able to secure domestic contracts and export orders.

Reality: Only two of the seven PSUs were able to secure domestic contracts and export orders. The others were not so lucky. Munitions India Limited which operates a network of 12 ordnance factories involved in the development, production, testing and marketing of ammunition and explosives bagged the biggest ever export order for ammunition worth Rs 500 crore -one of the largest ever export orders of ammunition bagged by an Indian entity. The 12 factories under the MIL produce an assortment of small, medium and high-calibre ammunition, mortars, and rockets. Likewise, YIL bagged orders from Indian Railways for Axles worth about Rs 251 crore.   

Myth #5: These new entities started adopting various measures for optimum utilization of resources and cost reduction. This led to cumulative savings of about 9.48% in terms of overtime and other non-profit generation activities during the initial six months.

Reality: This is just a façade that has been created to hype the achievements of the seven PSUs. In reality post Corporatization the investment in critical areas like R&D is at an all-time low. There is no delegating of powers to factory GMs / CGMs. Even for routine affairs like deploying employees on overtime, or conducting meetings permission has to be taken from the CMDs’. Due to perpetual budget constraints, the DPSUs are not able to purchase raw materials etc. Even medical reimbursement claims are pending. There is also a considerable drop in the monthly salary of employees due to the stoppage of overtime and arbitrary reduction in labour estimates. OFIL and NADP – the two training institutes have become non-operational. Currently, no program for skill development is taking place. Estate maintenance / Civil works have been completely halted in the name of the non-availability of funds. All this is sure to make its impact felt not immediately but 3-4 years later when the seven PSUs will not be able to develop new products and perform even worse than the Ordnance Factories.

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Myth #6: The seven new DPSUs will scale new heights and set standards for others to follow.  

Reality: In reality, the motivation of manpower is at its lowest ebb. An impression has been created amongst the erstwhile Ordnance factory employees that corporatization is a punishment for them and yet another effort to help private business houses to take over and make big profits by running Government organizations. As a result, there is total chaos, demoralization, dissatisfaction and discontentment amongst the employees, supervisory Staff and officer cadre who are applying for voluntary retirement from service.

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Neeraj Mahajan
Neeraj Mahajanhttps://n2erajmahajan.wordpress.com/
Neeraj Mahajan is a hard-core, creative and dynamic media professional with over 35 years of proven competence and 360 degree experience in print, electronic, web and mobile journalism. He is an eminent investigative journalist, out of the box thinker, and a hard-core reporter who is always hungry for facts. Neeraj has worked in all kinds of daily/weekly/broadsheet/tabloid newspapers, magazines and television channels like Star TV, BBC, Patriot, Sunday Observer, Sunday Mail, Network Magazine, Verdict, and Gfiles Magazine.


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