The New Defence Public Sector Undertakings —A Tale of Budgetary Support & Profits in the Post-Corporatisation Era of Ordnance Factory Board

The Corporatization of India’s oldest defence manufacturing entity, the Ordnance Factory Board (OFB), marked a significant shift in India's defence production approach. Established on October 1, 2021, under a radical restructuring initiative, seven new DPSUs were carved out from the OFB, transforming it from a monolithic government organisation into individual corporate entities with distinct profit and loss responsibilities. This reform aimed to enhance competitiveness, accountability, and efficiency in India's defence manufacturing sector. On this occasion, Hon. Raksha Mantri said “The objective of this restructuring is to transform Ordnance Factories into productive, and profitable assets, improve expertise in the product range, increase competitiveness, improve quality, enhance cost-efficiency and ensure self-reliance in Defence preparedness”. Officially inaugurated on October 15, 2021, by Hon Prime Minister, the New Defence Public Sector Undertakings (NDPSUs) are — Munitions India Ltd (MIL), Armoured Vehicles Nigam Ltd (AVNL), Advanced Weapons and Equipment India Ltd (AWEIL), Troop Comforts Ltd (TCL), Yantra India Ltd (YIL), India Optel Ltd (IOL), and Gliders India Ltd (GIL).
PSU Paradigm
PSUs are commercial profit-making organisations. The PSU structure enables autonomy for the organisation. However, this freedom comes with the major responsibility of being self-sustaining in all respects including finance. Ideally, the government does not give budgetary support to the PSUs, rather PSUs have to give dividends to the government from their profits.
Legacy of The OFB: Challenges
The OFB had faced criticism for several years, including from senior armed forces officials, the Comptroller and Auditor General of India (CAG), and Parliamentary Committees etc. These bodies pointed out issues like frequent delays, inconsistent quality checks, and an impact on national defence readiness. The CAG’s 2019 report and an internal Army report in 2020 flagged issues of faulty ammunition and equipment, linked to numerous accidents and financial losses. Despite these concerns, the OFB had remained resistant to change. Various media reports critical of OFB were shrugged off as being motivated, biased, floated by vested interests etc. It was believed that the management structure of OFB was not conducive for it to be an efficient & dynamic organisation therefore it was decided to change its management structure by corporatising it i.e. making it a corporate entity.
Corporatisation: Cultural & Structural Shift
Although, corporatization represents a significant shift, the true test lies in its execution. Achieving the intended objectives — namely, boosting quality, improving cost efficiency, and ensuring timely delivery, etc.— requires more than structural changes. Corporatization demands a cultural shift that fosters innovation, professionalism, and an ownership mindset among employees, many of whom have expressed apprehension regarding this transition. The transition from a bureaucracy driven organisation to a profit oriented one, may lead to friction within the workforce especially among employees who are accustomed to job security and limited performance accountability. The All India Defence Employees Federation, representing a workforce of nearly 79,000, voiced concerns about the sustainability of these new entities, highlighting the scepticism and resistance among OFB’s employees towards the sudden transformation. The workers’ unions filed legal cases and advocated for the reversal of corporatization. Many feel that employee sentiments have been overlooked, which could hinder the transformation effort if not addressed comprehensively.
NDPSU Financial Performance: A mixed Bag
The financial results of the NDPSUs though initially muted are encouraging as per recent news reports. Improved Financial Performance of the NDPSUs, especially Yantra India Limited (YIL), Armoured Vehicles Nigam Limited (AVNL), and Munitions India Limited (MIL), has been noteworthy as reported in the media. Collectively, NDPSUs achieved a profit of ₹1,549 crore 2023-24, compared to a mere ₹35 crore three years ago. YIL and AVNL, which provide critical supplies to the Indian armed forces, demonstrated significant profit growth. The media further reported that this achievement suggests a positive initial outcome of the restructuring efforts and indicates the DPSUs' potential to operate sustainably in a competitive environment.
However, questions remain about the sustainability of these figures, especially as some of these entities previously reported heavy losses. A thorough review of the financial data and operational metrics is crucial to assess the true impact of corporatization. Further, as per practice, the PSUs share their profits with the Govt by paying dividends. Hope, NDPSUs will soon announce dividends for the Govt.
Defence Exports & Imports : Global Standing
It is pertinent to highlight that as per SIPRI data published in early 2024, India is the largest importer of weapons in the world. Further with the current pipeline of import cases under progress (as had been reported in media recently ) India may make some major arms imports. Seems, it is less likely that India will move out from the list of Top arms importers soon. Further, SIPRI published a list of Top 100 Arms Producers in the world on 2nd Dec 2024. None of these seven NDPSUs figure in this list. Here, it is pertinent to mention that OFB was at serial no. 56 in the top 100 Arms Producers of SIPRI in 2018, prior to its corporatisation. One may feel that missing the slot by NDPSUs could be an impact of dividing the OFB into seven entities post-corporatisation. Currently, other Indian DPSUs- HAL, BEL and MDL are in this list of Top 100 Arms Producers worldwide.
Budgetory support & Profits
The story will be incomplete if the privilege of the NDPSUs of continuing Govt support is not highlighted. Despite the reported profits, these DPSUs still rely heavily on government budgetary support. It was Rs 1310 Cr in the years 12022-23 and 2023-24 which increased by 15% to Rs 1494 Cr in 2024-25 as per the Govt Budget documents. With more Profits coming, the government subsidy to NDPSUs should have been reduced, on the contrary, it has increased. This raises questions about their self-sufficiency. True financial independence and competitiveness can only be validated when NDPSUs operate without government subsidies.
While this article was being published the Budget 2025-2026 has been presented on 1st Feb 2025. In this regards, it is pertinent to mention that the Budget 2025-2026 repeats the same budgetary support as of previous years to NDPSUs ie of Rs 1494 cr which has been distributed amongst the NDPSUs the same way ie Rs 173cr. for AVNL; Rs 329Cr for AWEIL; Rs 745Cr. for MIL; Rs 10 Cr. for TCL; Rs 6.0 Cr. for IOL; and Rs 228Cr.for YIL.
Hope more realistic assessment of P & L is made after taking into account the respective budgetary support and thereafter profits are declared accordingly. Otherwise it will give misleading picture of financial health of these NDPSUs. Budgetory support is not given to PSUs except in special circumstances like the PSU is sick, or is a green field project etc.
The NDPSUs have received benefits from existing orders from the armed forces, effectively "grandfathered" from their OFB days. This privilege may not continue indefinitely, especially as the private sector gains traction and the armed forces demand more sophisticated and innovative products. The reliance on legacy orders without significant innovation or R&D investments could hinder long-term sustainability.
The majority of the products of NDPSUs are based on the Transfer of Technology (ToT) from abroad with few from DRDO & other domestic sources. Therefore, if technology changes, old products may become redundant moreso because new Tech weapons are better than old Tech Weapons therefore priority becomes to acquire New Tech Weapons. In this situation NDPSUs may find it difficult to sustain until they have access to ToTs as this is the only way these entities have been doing till now i.e. build to print. Major ToTs are usually reported in Media. As we have not seen any such news in recent past therefore one can assume that no major substantive ToT has been concluded in recent times pertaining to domains of these New DPSUs.
Though we have converted the OFB to NDPSUs, the legacy issue of lack of R&D and Innovation capabilities continues, though attempts are being made to overcome it. A major limitation of the NDPSUs is their lack of in-house R&D capabilities. However, there are some ‘feathers’ in the cap of these NDPSUs, though inherited from OFB days regarding some in-house developments like ‘Dhanush’ and ‘Sharang’ artillery gun systems etc. However, these are improvements of existing weapon systems like Dhanush flows from Bofors gun and Sharang is the integration of a Russian 130 mm gun with 155 mm Ordnance. While these products serve the current needs, they may not be sufficient in the face of rapid advancements in defence technology. Lack of indigenous innovation and patents suggests that these DPSUs may struggle to keep pace with global standards and face competition from private players who invest heavily in R&D or are capable of quickly obtaining technology by tying up with major Original Equipment Manufacturers (OEMs) abroad as we see with spate of late lateral entrants in Defence Production like Tata, L&T, Bharat Forge etc.
Indian Defence Production is largely inward-looking i.e. catering to domestic captive demands of the Armed Forces which makes it vulnerable to changes in Armed Forces’ requirements. Though exports are there but in a small percentage of the gross production. As per SIPRI data of early 2024, India is not on the list of top 20 Arms Exporters in the World. If the armed forces decide to phase out older arms and ammunition types, these new entities may face challenges in adapting to new demands due to limited product diversification and innovation. This over-reliance on a few product lines can make them vulnerable to changes in defence procurement policies.
There is increasing global competition in the field. The private sector in India is rapidly expanding its capabilities and securing new orders. Unlike private firms, these NDPSUs still grapple with legacy issues such as bureaucratic processes and complex decision-making hierarchies. Private companies, often more agile and innovative, could pose a serious challenge to NDPSUs as they vie for the same defence contracts, both domestically and internationally. We read in the media that the private sector has bagged the order for a new type of ammunition namely Loitering. Ammunition was the forte of OFB however it now seems that it is being ceded to the private sector. Long-term success in the export market will require a broader product range and a more aggressive focus on quality and technological advancements.
As far as these NDPSUs are concerned, there is limited export growth beyond Ammunition. The recent export growth in the NDPSUs has primarily been in ammunition, driven by ongoing geopolitical tensions and demand surges. However, if international demand fluctuates or if these NDPSUs fail to diversify their export portfolio, they may struggle to sustain export growth.
Another notable development has been the engagement of SBI Caps by the Ministry of Defence (MoD) a year ago to advise on merging again a few entities thus carved out of OFB hurriedly in 2021. It is a little perplexing why this need has been felt when just a few years ago it was decided to make seven separate entities. Probably some issues have been found which prompted MoD to assign this task to SBI Cap. We are yet to hear about any further developments in this regard. It would have been ideal if the OFB was converted to PSU in its monolithic form only without dividing it as there is a great amount of interdependency of its units which has now disintegrated due to the formation of NDPSUs.
While the immediate financial performance is promising, true transformation in large public sector organizations requires sustained efforts in areas like organizational culture, leadership development, and employee engagement besides R&D, innovation etc. Without comprehensive changes to align workforce behaviour, corporate governance, and strategic objectives, the NDPSUs risk becoming superficial reorganizations that may not fulfil their long-term mandate. Long-term viability without systemic changes will not be sustained.
In the end, it must be highlighted that while the corporatization of OFB has the potential to transform India’s defence manufacturing, its success will depend on the NDPSUs’ ability to overcome structural and cultural barriers besides aggressively pursuing R&D, Innovation, new product development and marketing. It is essential to adopt a realistic and grounded approach, acknowledging both the progress made and the challenges that lie ahead. Only then can India’s defence manufacturing sector truly emerge as a world-class competitor capable of meeting both national and international demands.
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