Privatizing Arms Manufacturing Has India’s Federal Workforce Seeing Red

The Indian government is contemplating major changes in the state-owned Ordnance Factory Board, which administers 42 armament and ammunition factories across the country, but the workforce is opposing the move.

The government has already opened some noncore areas of weaponry to the private sector, including ammunition production, and now the plan is to identify some factories and tie up these with private-sector defense companies, thus breaking the monopoly of the Ordnance Factory Board, or OFB, a Ministry of Defence official said.

The move could eventually lead to privatization of the OFB at a later date, say analysts. However, the workforce, numbering 90,000 in these 42 factories, is opposing the move.

C Srikumar, general secretary of the All India Defence Employees Federation, told Defense New: “The government is trying to create a monopoly through private models. When price cannot be determined, it is better to have public monopoly as per market principles.”

With a turnover of over $2 billion, the 42 factories under the OFB produce arms, ammunition, artillery guns, tanks, combat vehicles and troop comfort items. Nearly 80 percent of the production goes to the Indian Army, six percent each to the Indian Air Force and the Indian Navy and the remaining eight percent for paramilitary forces.

Besides opening up products to the private sector, the government is also identifying weapon factories of OFB that can be corporatized resulting in a tie up with private sector defense companies, MoD official said.

Bhupinder Yadav, a retired Indian Army major general and defense analyst, says a proposal is under consideration to bring four arms manufacturing units making 9mm carbines, 7.62mm rifles, light machine guns (5.56mm), rifles (5.56mm) and other infantry weapons alongside items under corporatization, also called public-private partnership, or PPP, model.

“The four units identified for the PPP model are Small Arms Factory, Ordnance Factory Tiruchirappalli, Rifle Factory Ishapore and Ordnance Factory Korwa,” Yadav noted.

The majority of the products that are being produced by the OFB are of Russian origin, but it is mostly of assembly nature with very little technology absorption. As such, the level of indigenization is very low.

The MoD official noted that many crucial defense programs related to tanks, armored vehicles, air defense systems and some types of ammunition have suffered a severe hit on account of delays between three to nine years in production.

“About 90 percent of the major equipment produced by OFB are under license from foreign firms. They do not provide the complete ‘know-why’ of product design which is almost between 60 and 80 percent of the value of a platform. Resultantly, the desired level of indigenization is not achieved, [an] example being T-90 and 84mm rocket launchers, thus remain dependent during [their] life cycle for maintenance and upgrade, which is quite expensive,” said Yadav.

The Indian Army official said the price at which the OFB supplies equipment is very steep compared to overseas products.

Srikumar, clarifying on the accounting practice of the OFB, said, “The demand of military acquisitions is generated by the [Indian] government, and the price is decided by the government; and OFB works on [a] no profit, no loss basis.”

Responding to the cost of some products that are higher than imported products, Srikimar says: “The volume of T-90 tanks manufactured in Russia are far greater than in India. Given the volume to OFB, we would match the price of import.”

While agreeing on the move to improve the efficiency of the OFB, Rahul Bhonsle, a retired Indian Army brigadier and defense analyst, said however, it should be “a small beginning in shifting orders from the OFB to private sector companies but only for items which are mostly categorized as general stores and clothing. War like stores continue to be the monopoly of the OFB.”

Yadav is not sure whether the move toward privatization of OFB would be completed. “Despite all the hype, the OFB factories are not likely to be corporatized or get into partnerships with the private sector in the near future because proposals have already resulted in massive protest meetings organized by workers’ unions.”

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