Government Dissolves Ordnance Factory Board: Here's Everything You Should Know

Earlier today, the Narendra Modi government dissolved the Ordnance Factory Board (OFB) and transferred the employees and assets belonging to the OFB to seven public sector units (PSUs).

The order dated 28 September, which came after the government decided to push for the corporatisation of the OFB, will come into effect from 1 October.

With this order, "41 production units and identified non-production units" have been transferred to "seven government companies (wholly owned by the Government of India).”

“The government has decided that all the employees of OFB belonging to the production units and also the identified non-production units… shall be transferred en masse to the new DPSUs on terms of foreign service without any deputation allowance initially for a period of two years from the appointed date (October 1)," the order added.

The seven new PSUs created under the Defence Ministry for this purpose are Munition India Limited, Armoured Vehicles Nigam Limited, Advanced Weapons and Equipment India Limited, Troop Comforts Limited, Yantra India Limited, India Optel Limited and Gliders India Limited.

After protests against its plan to corporatise the OFB, the Narendra Modi government had promulgated an ordinance in June 2021 banning strikes by those engaged in essential defence services.

The decision to bring the ordinance was taken after three employees’ federations of the OFB threatened to go on a strike in the middle of the military standoff with China in eastern Ladakh.

In July, Defence Minister Rajnath Singh introduced the Essential Defence Services Bill, 2021 to prevent workers in defence establishments like the OFB from going on strike. It was passed by Parliament in August.

Corporatisation of OFB

Corporatisation of the OFB will help in increasing competitiveness, improving efficiency and quality and ensuring accountability.

Corporatisation of OFB will give the organisation a structure similar to that in the existing DPSUs, which are managed by their own board of directors with the government giving only broad guidelines, thereby providing greater autonomy and flexibility at managerial and functional levels.

New entities will be able to make their own plans on investments and research and development, without much interference from outside.

Post corporatisation, the new entities will also be able to forge partnerships with the defence manufacturers in the private sector, both domestic and foreign, like other DPSUs such as Hindustan Aeronautics Limited have done.

This would bring new hardware and technology to these units, helping them upgrade the existing infrastructure, which is outdated in many cases.

The new entities will also be in a better position to improve capacity utilisation, face competition and tap new export opportunities. Post-corporatisation, the new units will move from administrative pricing mechanism to competitive pricing, which in turn will bring down the cost of products for the armed forces.

These entities will also be able to retain profit, making them self-sufficient financially in the medium term.

The government believes corporatisation of OFB could increase the turnover of the ordnance factories to Rs 30,000 crore by 2024-25, help grow exports to 25 per cent of the turnover and increase self-reliance in technology, which is currently limited to 20-25 per cent, to over 75 per cent by 2028-29.

Read: Corporatisation Of The Ordnance Factory Board And Why It Was Needed