Ordnance Factory Board (OFB): BIG RESTRUCTURING DECISION by Modi government! Major reform done - Check CONFIRMED details of Cabinet meeting

The Narendra Modi government has given a go-ahead to the restructuring of the Ordnance Factory Board (OFB), a PTI report said. Touted as one of the major reform initiatives and a long-pending proposal, the government on Wednesday gave its approval for the restructuring exercise.   

The Ordnance Factory Board operates 41 ammunition and military equipment production facilities and the restructuring will see them turning into seven state-owned corporate entities. The move is aimed at improving its accountability, efficiency and competitiveness, the PTI report said. 

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The decision to corporatise OFB on the lines of defence public sector undertakings was taken at a meeting of the union cabinet chaired by Prime Minister Narendra Modi. This was nearly two decades after the reform measure was first mooted to bring professionalism and significantly enhance its productivity, PTI report said quoting the officials. 

"It is a big decision that complements India's national security requirements. It will help in achieving our targets for defence production. There will be no change in service conditions of the employees," he told a small group of journalists. 

Officials said the seven entities are likely to take shape by the year's end and they will be operated by professional management with a larger goal of enhancing the product range, increase competitiveness and improve cost-efficiency. 

"This restructuring is aimed at transforming the ordnance factories into productive and profitable assets, deepening specialisation in the product range, enhancing competitiveness and improving quality and cost-efficiency," said one of the officials. 

"The new structure would help in overcoming various shortcomings in the existing system of OFB by eliminating inefficient supply chains and provide these companies incentive to become competitive and exploring new opportunities in the market including exports," said the second official. 

"Today's decision would allow these companies autonomy, as well as help improve accountability and efficiency in the functioning of the 41 factories under the new companies," he said. 

OFB Overhauling: 

At present, the OFB functions under the department of defence production of the Ministry of Defence. 

The new entities will produce ammunition and explosives, weapons and equipment, vehicles, troop comfort items, optoelectronics equipment, parachutes and ancillary products, PTI report said quoting the officials. It further said that the reform process is being rolled out as part of the prime minister's vision for self-reliance in the defence sector. 

The seven entities will include an ammunition and explosives group, vehicles group, weapons and equipment group, 'troop comfort items group', ancillary group, optoelectronics group and parachute group, the officials said. 

The ammunition and explosives group would be mainly engaged in the production of ammunition of various calibre and explosives and its focus would be to exploit the huge potential to grow exponentially including for the export market, this report said. 

The vehicles group would mainly engage in the production of defence mobility and combat vehicles such as tanks, BMPs (infantry fighting vehicle) and mine protected vehicles. The focus of the group would be to increase its share in the domestic market through better capacity utilisation and also to explore new export markets. 

The weapons and equipment group would be mainly engaged in the production of small arms, medium and large-calibre guns, and other weapon systems and is expected to increase its share in the domestic market through meeting domestic demand as well as product diversification, the officials said. 

Impact of restructuring on Employees: 

Defence Minister Rajnath Singh called this as a "historic decision" stating that there will be no change in service conditions of nearly 70,000 employees of the organisation and that the decision is driven by efforts to boost India's defence manufacturing sector. 

"All employees of OFB (Group A, B and C) belonging to the production units would be transferred to the corporate entities on deemed deputation initially for a period of two years without altering their service conditions as central government employees," PTI report said quoting another official. 

The pension liabilities of the retired and existing employees will continue to be borne by the government, according to the Cabinet decision. 

At present, the government has to shell out around Rs 5,000 crore annually to pay the salaries of the OFB employees. Additionally, it gives around Rs 3,000 crore to OFB as an operational cost. 

The defence ministry has set a goal of a turnover of USD 25 billion (Rs 1.75 lakh crore) in defence manufacturing in the next five years that includes an export target of USD 5 billion (Rs 35,000 crore) worth of military hardware.