RE­PAINT­ING THE WHITE ELE­PHANT

Hec­tic moves within the de­fence min­istry sug­gest the Modi govern­ment is work­ing to end one of the govern­ment’s last mo­nop­o­lies—ord­nance fac­to­ries By San­deep Un­nithan

India Today - - DEFENCE | ORDNANCE FACTORY BOARD -

For nearly 70 years, the ord­nance fac­to­ries that sup­plied the armed forces with ev­ery­thing from boots to battle tanks thrived as a govern­ment mo­nop­oly. This meant the armed forces had no op­tion but to buy what they pro­duced. Then, this year, the min­istry of de­fence (MoD) made its first moves to open one of its last bas­tions to the harsh light of com­pe­ti­tion. The full con­tours of what is be­ing planned are yet to be revealed, but a study of the agenda points of meet­ings sug­gests a ma­jor change in think­ing within the min­istry.

In Fe­bru­ary, a let­ter went from the Prime Min­is­ter’s Of­fice to the sec­re­tary (de­fence pro­duc­tion), ask­ing for lists of ord­nance fac­tory board prod­ucts, plant and ma­chin­ery and, more sig­nif­i­cantly, the land held by each of the 41 fac­to­ries op­er­at­ing un­der the MoD’s depart­ment of de­fence pro­duc­tion.

The let­ter was fol­lowed by a se­ries of pol­icy moves sig­nalling that busi­ness as usual was com­ing to an end within the ord­nance fac­to­ries, long crit­i­cised by the armed forces for sup­ply­ing sub­stan­dard, over­priced equip­ment. In April, the MoD in­vited the pri­vate sec­tor to par­tic­i­pate in ten­ders to sup­ply nine types of am­mu­ni­tion for tanks and how­itzers, hith­erto a pre­serve of the ord­nance fac­to­ries. On April 27, an MoD cir­cu­lar to the chair­man of the Ord­nance Fac­tory Board (OFB) iden­ti­fied a list of 143 ‘non-core’ items, rang­ing from uni­form cloth and sleep­ing bags to mil­i­tary trucks, that the army could buy from the open mar­ket. The shape-up or ship-out ap­proach was out­lined in the cir­cu­lar: ‘…the MoD can iden­tify non-core ac­tiv­i­ties that can be ei­ther closed down or put on the PPP model for op­ti­mal use of the OFB’s vast

in­fra­struc­ture and skilled man­power’.

A May 30 meet­ing within the MoD, at­tended by OFB chair­man S.C. Ba­j­pai and sec­re­tary (de­fence pro­duc­tion) Ashok Ku­mar Gupta, is be­lieved to have iden­ti­fied four ord­nance fac­to­ries for pub­lic-pri­vate part­ner­ship (PPP). Th­ese in­clude the Ri­fle Fac­tory Isha­pore, Small Arms Fac­tory Kan­pur, Ord­nance Fac­tory Project Korwa and Ord­nance Fac­tory Trichy.

It is still not clear if the govern­ment will cor­po­ra­tise the ord­nance fac­to­ries—merge the 41 fac­to­ries into a con­glom­er­ate along the lines of other de­fence PSUs, such as Hindustan Aero­nau­tics Ltd, be­fore sell­ing a stake to the pri­vate sec­tor, as in the case of Maruti Suzuki. Cor­po­rati­sa­tion was a panacea held out by var­i­ous MoD-ap­pointed com­mit­tees, headed by for­mer rev­enue sec­re­tary Vi­jay Kelkar in 2005 to vice ad­mi­ral Ra­man Puri in 2016, but never im­ple­mented by the govern­ment fear­ing the po­lit­i­cal fall­out. Still, the re­cent moves—that put the govern­ment on a col­li­sion course with ord­nance fac­tory trade unions—are big enough for a pri­vate sec­tor CEO to call them the big­gest af­ter the Strate­gic Part­ner­ship pol­icy cleared on May 20, that al­lowed the pri­vate sec­tor to make de­fence sys­tems with for­eign ven­dors.

The ord­nance fac­to­ries are the old­est or­gan­i­sa­tions of the govern­ment, pre­dat­ing the In­dian Rail­ways by a half-cen­tury and mir­ror­ing the march of mil­i­tary history on the sub­con­ti­nent. The East In­dia Com­pany set up a Gun and Shell fac­tory in Cos­si­pore near Kolkata in 1801. The British em­pire added a dozen ord­nance fac­to­ries af­ter the 1857 re­volt. The newly in­de­pen­dent In­dian state, its decade of som­no­lence rudely awo­ken by de­feat in the 1962 war with China, es­tab­lished 22 fac­to­ries to equip its ex­pand­ing armed forces. The fac­to­ries were set up in four clus­ters, in­su­lated from the need to raise fi­nance or fight for or­ders.

Over 80 per cent of the OFB’s or­ders come from the In­dian army. Yet, th­ese 41 fac­to­ries meet less than 50 per cent of the army’s re­quire­ments. A gen­eral reels out the fac­tors af­flict­ing the OFB—in­abil­ity to ab­sorb tech­nol­ogy, sup­port a prod­uct, main­tain qual­ity and meet time and cost pa­ram­e­ters. The army has had to re­peat­edly order T-90 tanks from Rus­sia to make up for pro­duc­tion de­lays at the ord­nance fac­tory in Avadi, Tamil Nadu. As the gen­eral says, the OFB promised 100 tanks a year but could barely de­liver more than 85.

Sev­eral OFB-built main­stays will soon need re­place­ments. The army has to go shop­ping for a new main battle tank to replace the T-90 and T-72 tanks built at Avadi, it will need a new in­fantry com­bat ve­hi­cle to replace the BMP-2 made at the Ord­nance Fac­tory Medak, and a new 7.62x51 mm as­sault ri­fle to replace the INSAS ri­fle made by Ri­fle Fac­tory, Isha­pore.

A re­port submitted by a de­fence min­istry of­fi­cer in May 2016, copies of which were sent to the prime min­is­ter and the national se­cu­rity ad­vi­sor, is be­lieved to have set the OFB re­form ball rolling. In the re­port, A.K. Sax­ena, ad­di­tional Con­troller Gen­eral of De­fence Ac­counts (CGDA), an or­gan­i­sa­tion re­spon­si­ble for fi­nan­cial ad­vice, pay­ment and ac­count­ing in the MoD, pointed to­wards the OFB’s se­ri­ous in­ef­fi­cien­cies. The OFB, Sax­ena said, was over­charg­ing the army sev­eral hun­dred crores in cases rang­ing from battle tanks to cloth­ing to gen­eral stores. In the case of the T-90 tanks built un­der li­cence from Rus­sia at the Heavy Ve­hi­cles Fac­tory Avadi, the OFB was charg­ing the army Rs 21 crore per tank, nearly 50 per cent more than what an im­port would cost.

“Make in In­dia will fail un­less the ord­nance fac­to­ries are cor­po­ra­tised, or bet­ter still, get into part­ner­ships with the pri­vate sec­tor. There is no way for them but to com­pete,” Sax­ena says.

In Septem­ber last year, NSA Ajit Do­val as­sessed the army’s dis­sat­is­fac­tion with OFB prod­ucts in a meet­ing with then army vice chief Lt Gen. Bipin Rawat. This led to the se­ries of pol­icy de­ci­sions this year that gradu-

ally whit­tled away at OFB mo­nop­o­lies.

The pow­er­ful trade unions, which con­trol over 88,000 em­ploy­ees in th­ese fac­to­ries, are aghast at the move to bring in the pri­vate sec­tor and have warned of an ag­i­ta­tion cul­mi­nat­ing in an in­def­i­nite strike. “The govern­ment’s PPP move spells the death knell for our fac­to­ries,” says C. Sriku­mar, gen­eral sec­re­tary, All In­dia De­fence Em­ploy­ees’ Fed­er­a­tion. “With­out or­ders, our fac­to­ries will turn sick. And when they turn sick, they can be sold off.”

Sig­nif­i­cantly, unions hold the change of guard within the min­istry re­spon­si­ble for the cor­po­rati­sa­tion buzz. For­mer de­fence min­is­ter Manohar Par­rikar had re­port­edly as­sured the unions he wouldn’t cor­po­ra­tise or pri­va­tise the ord­nance fac­to­ries. Sim­i­lar as­sur­ances were given by de­fence min­is­ters in the UPA era, Pranab Mukher­jee and A.K. Antony, as well.

Par­rikar in­stead asked the fac­to­ries to im­prove ef­fi­ciency. “Let me see if I can paint an­other colour,” he re­marked to a 2015 me­dia query on his plan for OFB ‘white ele­phants’. Un­der Par­rikar, the OFB boosted out­put from Rs 11,000 crore in 2014 to a record of over Rs 15,000 crore this year and cut its work­force from 96,317 to 87,707. He del­e­gated fi­nan­cial pow­ers to avoid de­lays in pro­cess­ing R&D projects at the OFB head­quar­ters, gave fac­to­ries a tar­get to in­crease the ex­pen­di­ture on R&D ac­tiv­i­ties to 3 per cent of their turnover by 2018-19.

Af­ter Par­rikar’s de­par­ture from the MoD in March this year, the govern­ment has stepped on the gas.

The ord­nance fac­to­ries are sit­ting on a land bank es­ti­mated to be 60,000 acres, a small but size­able frac­tion of the to­tal 17.5 lakh acres of de­fence land. The most valu­able tracts are thought to be in Pune, Avadi, Ja­balpur, Medak, Dehradun, Kolkata and Kan­pur. This is where the MoD’s April 27 cir­cu­lar specif­i­cally asks the OFB for its real es­tate hold­ings in th­ese cities.

“The govern­ment is tak­ing a proac­tive move to en­sure land, ma­chin­ery, cap­i­tal and skilled man­power are best utilised,” says Ratan Shri­vas­tav, an in­de­pen­dent de­fence con­sul­tant and ad­vi­sor with the Fed­er­a­tion of In­dian Cham­bers of Com­merce and In­dus­try.

“Cor­po­rati­sa­tion may not be the ul­ti­mate panacea,” says Lax­man Ku­mar Be­hera of the New Delhi-based MoD think tank, In­sti­tute for De­fence Stud­ies and Analy­ses (IDSA). “It is the first step for fur­ther re­forms such as di­vest­ment of govern­ment eq­uity and ul­ti­mately pri­vati­sa­tion, if re­quired.”

Some re­cent suc­cesses sug­gest a hid­den po­ten­tial in the ord­nance fac­to­ries. One such break­through is the ‘Dhanush’ 155 mm guns, an in­dige­nously pro­duced up­graded ver­sion of the Bo­fors how­itzers. The first batch of six guns suc­cess­fully passed field tri­als, open­ing up both an op­por­tu­nity and a dilemma. The OFB has an order for build­ing 414 how­itzers, which it presently lacks the ca­pac­ity to pro­duce. At cur­rent pro­duc­tion rates, it would take the ord­nance fac­to­ries more than a decade to de­liver all the guns. “This is where a PPP model needs to step in and en­sure that the OFB can off­load or­ders onto pri­vate sec­tor play­ers with how­itzer-man­u­fac­tur­ing ca­pac­ity,” says Lt Gen. P. Ravi Shankar (re­tired), for­mer di­rec­tor gen­eral, ar­tillery. A win-win for both.

ON TAR­GET Field tri­als of the OFB-built 155 mm Dhanush how­itzer

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