OFB Corporatization – Top Down Approach

By: Mr Pradeep Gupta & Dr Sangeeta Goel

The curtains came down on the India's oldest manufacturing entity with a formal organisational structure , the ‘Indian Ordnance Factories’, once known as the ‘Force behind Force’ and the ‘Fourth arm of Indian Defence’. Despite strong protests by the Workers’ Federations and Officers’ Association, the Government put in place an all new organisational structure with major changes in the Rules of Business for these new entities thus paving way to the Corporatization of Ordnance Factories. from 1st October 2021. On October 15th 2021, as a major defence sector reform, Hon PM dedicated to the Nation, the seven new companies, namely Munitions India Ltd (MIL), Armoured Vehicles Nigam Ltd (AVNL), Advanced Weapons and Equipment India Ltd (AWEIL), Troop Comforts Ltd (TCL), Yantra India Ltd (YIL) and India Optel Ltd (IOL), carved out of erstwhile Ordnance Factory Board(OFB) and its 41 production units,13 development centres and 9 Institutes of Learning spread across India .

Raksha Mantri said that the new structure will help in overcoming various shortcomings in the then existing system of OFB. It would provide these companies incentive to become competitive and explore new opportunities in the market including exports. “The objective of this restructuring is to transform Ordnance Factories into productive, and profitable assets, improve expertise in product range, increase competitiveness, improve quality, enhance cost-efficiency and ensure self-reliance in defence preparedness,” RM said. In sum, the policy intent being to ensure better ‘1.Accountability 2. Efficiency and 3. Competitiveness’.


Given that the functioning of these factories had, off and on, been coming under scathing criticism from multiple stakeholders. Among the critics, the major voices were those of Senior Armed Forces Officers (Veterans & Serving) and Auditors including Comptroller and Auditor General of India besides Parliamentary Committees . The media besides the political & bureaucratic bosses were not left behind too. The CAG Audit Report No 15 of 2019 tabled in Parliament on 6th December 2019 pulled up OFB for inordinate delays, inadequate quality checks and adversely affecting defence preparedness of the country. In September 2020, an internal Army assessment highlighted in multiple Newspapers flagged concerns about faulty ammunition and armament supplied by the Ordnance Factory Board (OFB) causing Army casualties and bleeding the exchequer; 403 accidents over the last six years have resulted in the deaths of 27 soldiers and a loss of ₹960 crore it said. The report was later refuted by OFB.

In any case, the plan to restructure OFB was on agenda for quite some time. At least three expert committees on defence reforms over the past two decades, including the TKS Nair Committee in 2000, Vijay Kelkar Committee in 2005, and Vice Admiral Raman Puri Committee in 2015 had recommended it. Irrespective of the background, no one can refute that the initiative for restructuring was long under consideration.

The dissatisfaction of stakeholders was on several counts viz quality, timely delivery, cost, lack of state of the art features in the products etc. Large section in the Organisation felt that this criticism is motivated and biased therefore refused to acknowledge it. Failure of OFB to self-introspect and change itself for better made Govt intervention inevitable. Thus the change was thrust by the Government on OFB from Top by Corporatizing it. It is now fait accompli for this grand old Organisation.

The road ahead :

The real challenge of a policy initiative lies in its execution and intended outcome. The accountability, efficiency and competitiveness (quality + price) being proxy indicators in an organisation like this one. Success of this policy initiative demands execution and not just intentions of political bosses. And implementation could be a real challenge due to the very complex internal environment of the organisation. OFB as an organisation was originally set up to build dedicated facilities to create war reserves with neither business intent nor to earn profits . Now , expecting it to start functioning as a corporate entry overnight is beyond common-sense expectation . More so , when , the spirit of competitiveness which is essential for any Corporate entity had been far cry for erstwhile OFB.

One may agree or not with Sh. C. Srikumar, General Secretary of All India Defence Employees Federation who stated that “No new Factory has been established. The DDP has simply splintered the 41 Factories into 7 non-viable companies.” One cannot ignore that he was echoing the sentiments of OFB’s 79,000 strong workforce.

Therefore, given the humongous task at hand of the people in the corridors of power, though, it may be a bit early to comment, yet, writings on the wall show that it's all set for a bumpy ride ahead .

The policy envisaged to change the organisational structure. The first step toward implementation has been taken by superimposing the corporate performance. But the history of organisations shows that unless the leadership, people and roles & responsibilities and culture are also aligned to the structure on the extant culture and workforce the changes remain superficial. It's like a traditionally attired person made to wear modern styled clothing. The presumption being that the person will change his the attitude, behaviour, habits, Organisational structure, etc the Organisational change doesn’t happen. Besides, affecting change is easier said than done, more so when it is in the Governmental Sector, with jobs and pay securities and relatively less pressure to align individual goals to organisational goals. A look at the organisations that have successfully implemented change shows that the first and foremost requisite to successful change is employee ownership and employee engagement. And both seem to be conspicuously missing if multiple court cases, appeals and letters to political bosses and other authorities by IOFSA, AIDEF, BPMS and CDRA to ‘undo corporatization’, is a sampler .

The employee ownership and engagement requires transparent organisation-wide communication, strategic interventions and strategic attempts on the part of top management/leadership to convince employees to endorse the policy and embrace change along with bringing in efficiency on account of costing , quality , timely deliveries while inculcating professionalism, avoiding wasteful expenditure and simultaneously raising work-ethics & morale of workforce

The success stories of Bottom Up approach to introduce Organisation wide change in such massive Organisations are more in numbers than those of the Top Down approach like the existing case of Corporatisation of OFB.

Interestingly, it was at the policy framing stage that during one of the rounds of discussions with Min of Defence (as informed by the representatives of Federations) the Federations were told that OFB as an Organisation including its Officers have fallen short of being responsive to the changes in external environment and to turn around itself. In other words, the Ministry held IOFS Officers also responsible for the problems being faced by OFB Organisation. When the corporatisation was effected, the Ministry appointed the very IOFS officers at the helm of affairs of newly formed DPSUs making one wonder about the implicit contradiction .

The provisional P&L statements of new DPSUs is out. Except YIL, all the new DPSUs have made profits. However these P&L data needs deeper study as YIL which has made loss of Rs111 Cr is feeder organisation to most of the other new DPSUs. Besides , the Statement also indicates that before 1st Oct 2021 up to preceding three years heavy losses were made by all entities. This aspect too need to be looked into thoroughly and with open mind rather than showing the then OFB (entity before 1st Oct. 2021) as an organisation in poor light.

The DPSUs carved out of erstwhile OFB now have to pay Dividend to the Government the owner as they have made profits however it will be as per the MoU.

Latest the Federations vide their letter dated 23rd May 2022 to Hon RM have challenged the Provisional P&L statement of all these 7 DPSUs and have contested the statement of MoD about profits seen in 6 of the 7 new DPSUs besides depiction of erstwhile OFB making heavy losses in 3 year period prior to 1st Oct 2021. Federations have also contested statement of the Government justifying that Corporatisation has effected changes in positive direction.

Notwithstanding, the provisional P&L results, comprehensive review has to be made at appropriate time (the sooner it is done the better it may be ) for not only short term outlook but long term outlook (say ten years and beyond) as this only will sustain this grand old organisation, lest it will slowly fade into history. The product improvement, introduction/development of new products and innovation will be key to long term sustenance besides fulfilling the requirements of stakeholders in respect of Quality, Delivery, Cost etc. It has to be a continuous story.

On the face of it, it appears to be a hurriedly initiated policy step, aimed at bringing metamorphic change through what for sure has not been an internally-driven process of change, in other words, ‘not an organic process’.

Only time will tell if this process of change has been successful as visualised in the documents today or not. More than that ( beyond this process of change) it has to be seen if Corporatisation of OFB alone will enable Armed Forces to get best and the latest Arms & Ammunition at lower costs (as compared to imported ones ) with best quality and timely delivery, besides placing India in the league of nations like US, Russia, Israel etc in weapon conceptualisation and production or there is much more required to be done.

Disclaimer : This research based opinion- piece by the authors is meant for healthy academic discussion and debate in public interest arena and is not intended to point fingers or cast aspersions at any individual or organization . The authors are Ex IOFS officers .


Created By Akshay Kharade At Widespread Solutions

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