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Corporatization of ordnance factory board

Topics Covered: Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.

Corporatization of ordnance factory board:


Context:

The Union Cabinet has approved a plan to corporatize the Ordnance Factory Board (OFB).

Ordnance Factory Board (OFB):

It is an umbrella body for the ordnance factories and related institutions, and is currently a subordinate office of the Ministry of Defence (MoD).

The first Indian ordnance factory was set up in the year 1712 by the Dutch Company as a GunPowder Factory, West Bengal.

  • OFBs will be responsible for different verticals of the products such as the Ammunition and Explosives group will be engaged in production of ammunition while a Vehicles group will engage in production of defence mobility and combat vehicles.

What Will Change?

According to the plan, the 41 companies will reportedly be grouped under the new entities that will function like any other existing defence public sector undertaking (DPSU) like Hindustan Aeronautics Ltd (HAL) or Bharat Electronics Limited (BEL).

What Necessitated The Restructuring?

As per Comptroller and Auditor General (CAG) report on the ordnance factories:

  1. Production in factories continued to fall short of targets and that the various ordnance factories could achieve targets for only 49 per cent of items in 2017-18.
  2. A significant quantity of Army’s demand for some principal ammunition items remained outstanding as of 31 March 2018 which may adversely affect their operational preparedness.

Thus, inefficiencies in production and delays can be deemed to be a primary reason behind the overhaul of OFB.

Significance of new structure:

  1. The restructuring is aimed at transforming the ordnance factories into productive and profitable assets, deepen their specialisation in product range, enhance competitiveness and improve quality and cost-efficiency.
  2. The restructure would help in overcoming various shortcomings in the existing system of the OFB by eliminating inefficient supply chains and provide these companies incentive to become competitive and explore new opportunities in the market.
  3. It will allow these companies autonomy as well as help improve accountability and efficiency.

Concerns/Shortcomings of corporatization:

  1. Corporatisation would eventually lead to privatisation.
  2. The new corporate entities would not be able to survive the unique market environment of defence products that has very unstable demand and supply dynamics.
  3. Restructuring will result in greater autonomy and lesser government control over the corporation but there is a fear of job loss.

 

Insta Curious: 

Do you know the difference between Corporatization and Privatization? Read Here

 

Sources: the Hindu.