ORDNANCE FACTORIES – A STRATEGIC ASSET FOR INDIA

Introduction

India is in the thick of combating the global pandemic and is currently subject to a nationwide lockdown due to the spread of COVID-19. We have witnessed disruption and a sudden increase in demand for certain medical and healthcare products such as sanitizers, ventilators, PPE, face masks, etc over the past few weeks. The demand for these items has precipitously increased due to disruption in logistics, uncertainty in supply-chain and panic buying. Another reason for the deficiency is the manufacture of commodities such as masks, PPE and test kits in foreign shores; yes you guessed it, in China.

Reliance on foreign imports, especially in the ‘para bellum’ phase, points to a totally lack of strategic planning and the blame ought to lie purely on the country’s strategic planners (if one exists), who at any rate like to work in silos, with each department trying to protect its own turf, with nary a care for what would be beneficial for the country in the long-run. But wait; actually our forefather’s in their wisdom did establish a few industries for precisely these reasons, namely the INDIAN ORDNANCE FACTORIES.

History of the Indian Ordnance Factories

Indian Ordnance Factories are the oldest and largest industrial setup and forms an integrated base for indigenous production of defense hardware and equipment, with the primary objective of self reliance in equipping the Indian armed forces with state of the art battlefield equipment. The Indian Ordnance Factories possess the unique distinction of over 200 years of experience in defense production. The Ordnance Factories in India predates even institutions like the Indian Army by over a century.

The first Indian ordnance factory can trace its origins back to the year 1712 when the Dutch Ostend Company established a Gun Powder Factory in Ichhapur. In 1787, another gunpowder factory was established at Ichapore; it began production in 1791, and the site was later used as a rifle factory, beginning in 1904. In 1801, Gun Carriage Agency (now known as Gun & Shell Factory, Cossipore) was established at Cossipore, Calcutta, and production began on 18 March 1802. This is the oldest ordnance factory in India that is still in existence.

Organization

These factories function as attached offices of the Department of Defense Production (DoDP). The DoDP is part of the Ministry of Defense (MoD). Indian Ordnance Factory Services (IOFS) officers constitute its leadership and management cadre. The source of recruitment is through direct recruitment 60%; by promotion 40% and no lateral entries. “E pluribus unum”, the factories are a family of 41 Ordnance Factories under the aegis of its corporate headquarters Ordnance Factory Board, Kolkata. The Board receives an annual defense budget support of over Rs 2,000 crore, has 82,000 employees and holds over 60,000 acres of land.

Role and Task

The Indian Ordnance Factories is the world's largest defense department, producing everything from uniforms and tents to ammunition, tanks and artillery pieces for the Indian armed forces. In addition to production, they are into testing, logistics, research, development and marketing of a comprehensive product range in the area of land, sea and air systems. More than 80% of the OFB's orders come from the Indian Army.

Re-organization of OFB

The government now plans to re-organize the OFB into a more efficient and self sustaining organization. Over the past 15 years, three government committees have suggested corporatizing the OFB to increase its efficiency.

• 2000 - T.K.A. Nair Committee – Recommended conversion of the Ordnance Factory Board into the Ordnance Factory Corporation Limited.
• 2004 - Vijay Kelkar Committee - Recommended the same and also recommended status of a Nav Ratna.
• 2015 - Vice Admiral Raman Puri Committee - Recommended corporatizing the OFB, splitting it into three or four segments, each specializing in a distinct area like weapons, ammunition and combat vehicles.

Reasons for Re-organization

Despite its rich history and budgetary allocation, the OFB over time has fallen short of its ‘raison d etre’. There have been complaints from its user base stating that the organization’s approach is ‘caveat emptor’. The CGDA also has accused it for performing below par. Some of the defects observed are discussed below.

Monopoly and Cost over-runs

• The OFB supplies products to a captive customer, the Indian armed forces. This approach brings its own set of problems.
• A major consequence of monopoly is that there is no incentive for the OFB to improve quality.
• High overhead charges are loaded onto OFB products.
• Minimal innovation and technological development take place. Even if they do, then most of them fail to meet the field performance requirements of the Indian armed forces.
• Monopoly has led to low productivity.
• There is no penalty levied on OFB for delayed delivery to customers.
• The management has not been held accountable till date for low quality and defective equipment supplied to customers.  

A 2016 report of the CGDA alleged that the OFB overcharges the Indian armed forces for everything, from clothing to battle tanks. An indigenously assembled T-90 battle tank was twice as expensive as an original Russian-built T-90 tank. The Indian Army too has highlighted the poor quality of ammunition manufactured by the ordnance factories, saying that this has led to several fatal incidents.

The first move to end the OFB monopoly came when the government notified 275 non-core items which the armed forces could buy from the open market. In the past, the services had to buy these items exclusively from the OFB.

Indian Ordnance Factories as Strategic Assets

Viewed in the correct perspective, the Ordnance Factories are strategic assets. Research by the author reveals that the OFB claims its factories lead the way in indigenization and self reliance - the overall level of indigenization being about 90 per cent. For ammunition, the most critical item in times of war, the level of indigenization is 97 per cent. It has indigenously built the ‘Dhanush’ 155 mm howitzer and the 130 mm IFG is being upgraded into a 155 mm 'Sharang' field gun. 25 per cent of the Ordnance Factories revenues apparently come from products made from internal research and development.

The OFB claims that only the products conforming to laid down specifications are issued to the user. Ordnance Factories have ISO 9000 certified Quality Management System (QMS) as well as National Accreditation Board for Laboratories (NABL) accredited Labs. Items manufactured in Ordnance Factories are inspected by Quality Control wing of concerned Ordnance Factory during manufacturing process; besides there is surveillance audit and Final Acceptance Inspection (FAI) by Directorate General of Quality Assurance (DGQA) as second party Quality Assurance agency.

At the risk of the argument turning “ad hominem” the problems of functionality and inefficiency then squarely lies on IOFS cadre officers who have not been able to display “ductus exemplo”, by providing guidance, vision and direction as was done by their illustrious predecessors. The blame partly lies in the organizational structure and partly within the cadre. The same is explained as under:-

• These factories function as attached offices of the DoDP, ipso-facto, making the IOFS cadre subservient and dependent on generalists (IAS).
• Decisions relating, inter-alia, to modernizing plant and machinery to entering into joint ventures with other companies is subject to bureaucratic obfuscation and interference, which reduces the leverage and flexibility of any dynamic production and marketing unit.
• As a government department, OFB cannot retain profits and therefore has no incentive to operate cost-effectively.
• Promotion of IOFS cadre is time bound and not related to productivity and efficiency.
• No provision for lateral entry into the OFB makes it bureaucratic, obdurate and slothful.
• The IOFS cadre being technical heavy, lacks the expertise required in the fields of marketing and strategy, this could be a result of a captive customer base available for their products.
• In its present form the OFB lacks technical and managerial flexibility and hence is incapable of competing with the private sector.

Recommendations

The Indian Ordnance Factories have evolved from a premier production unit to its present sorry state. The organization in its present form and leadership will not be able to survive in a ‘Knowledge Economy’. But as the saying goes ‘nulla tenaci invia est via,’ so the cumulative experience and the accumulated infrastructure of the OFB cannot be bartered away to some avaricious private establishment in the garb of modernization. The answer lies in the innovative restructuring of the present setup and utilizing the existing infrastructure to be able to achieve the nation’s requirements both in peace and war, ‘Si vis pacem, para bellum’. The following recommendations are offered:- 

• Convert OFB from a “subordinate office” in the MoD to a 100% government-owned corporate entity under the Companies (Amendment) Act, 2019– This will ensure:-

o  Improved flexibility and help in better decision-making in the functioning of ordnance factories.

o  Creation of space for joint ventures with foreign firms.

o  Moving away from the current pricing mechanism (OFB costs are passed on to the customer).

o  Adoption of a process of competitive pricing.

o  Cost reductions for the armed forces/customers.

o  Greater penetration for India in the defence export market and innovation for self-reliance in defence.

o  In timely delivery of products, better utilization of under-utilized capacities and greater flexibility in technology acquisition through overseas assets.

• Abolishing the IOFS cadre and resorting to direct recruitment and lateral absorption/deputation from the fields of technology, sales and marketing, human resources and security.
• Government to modify the Trade Unions Act to being in more accountability and transparency.
• Bring the corporatized OFB under ESMA.
• Major focus on R&D and development of indigenous products and application for IP and patents.
• Explore scope for partnerships with private sector defence production entities under ‘Make in India’ scheme.
• Simplify export permissions for Ordnance Factory Board enabling more exports.
• Explore scope for FDI in the corporatized OFB.
• Greater and renewed emphasis on modernization of plant and machinery as well as transfer-of-technology agreements. 
• Dual use of existing infrastructure for manufacture of strategic goods for both military and civil use.

Conclusion

The GoI should be aware of the ‘Chesterton’s fence analogy’, before attempting change and naturally would have thought of the consequences. However, to attempt to revive the Indian Ordnance Factories is definitely not an attempt at “mulgere hircum”. They have not only supported India through all the wars, but played an important role in building India with the advancement of technology and ushered the Industrial Revolution in India starting with the first modern steel plant of India much before Tata Steel, first modern electric textile mill of India, first chemical industries such as smokeless propellant plants of India, established the first engineering colleges of India as its training schools, played key role in the founding of research and industrial organisations like ISRO, DRDO, BDL, BEL, BEML, SAIL.

‘Non progredi est regredi’, apropos, the strategic use of such establishments must not be under-estimated and no hasty decisions should be made to dispose off these strategic assets. The COVID 19 crisis is nothing short of war and future battles are liable to be fought on these lines, with newer roles envisaged for the Armed Forces and its ancillaries. As on date the Indian defense ministry has stepped up efforts to combat the Covid-19 crisis by roping in the OFB to manufacture essential medical equipment on a war footing. The facilities to produce the protective clothing ad equipment can be scaled up to meet the country’s requirements once the product meets medical standards. More medical and safety equipment can be manufactured by these establishments. The post COVID 19 world will see massive disruption in the world’s supply chain, with nations preferring to base their manufacturing facilities within their own soil or in countries that are reliable. India needs to rethink the use of the readily available facilities existing with the OFB and put it to use for the benefit and welfare of its citizens. The Indian Ordnance factories are force multipliers if its infrastructure and assets are used innovatively by the GoI. The ordnance factories need to be “in omnia paratus”, in these fast evolving times.