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The Centre has decided to go ahead with corporatisation of ordnance factories in order to reduce the import dependency of defence equipment, enhance combat efficiency of the Armed Forces and increase the profitability of the entities for greater employment generation.
The Defence Ministry on Wednesday said the decision to convert state-administered arms factories, which function directly under the Ordnance Factory Board (OFB) headquartered in Kolkata, into public sector enterprises has been taken after considering recommendations of at least three committees formed in the past to examine their functioning.
The 41 ordnance factories employ around 82,000 people. On Wednesday, the factory workers' 30-day strike against corporatisation entered its second day.
The factories are 'captive centres' manufacturing products, including tanks, armoured vehicles, artillery guns, small arms and ammunition apart from uniforms, tents and boots. Most have been in existence for more than 200 years and supply equipment only to the Army and different Paramilitary Forces under the Home Ministry.
Though sources claimed that the strike has the support of senior OFB officials, Bharat Pratiraksha Mazdoor Sangh (BPMS), one of the employees federations that has led the strike, informed that over 98 per cent of Group A officers in the OFB were not participating in it.
"Only about 5,000 deployed industrial workers from a total work force of over 76,000 were present on duty on Wednesday. The strike will continue till the government gives into our demand against corporatisation," BPMS General Secretary Mukesh Singh told IANS.
According to the government, the ordnance factories do not function in a competitive environment and have over the years been marred by issues pertaining to quality of products, high costs, lack of innovation and low productivity.
"The present structure of the board is inconsistent with the requirements of a production centre, which needs a lot of flexibility at the managerial and functional levels. Decisions like modernisation of plant and machinery, entering into joint ventures or transfer-of-technology agreements are subject to government regulations. The board has no incentive to make profits. It cannot compete with private industries that have all managerial and technical flexibilities required for production and marketing activities," said a Ministry official.
With a structure not conducive to sustain itself in the market, sources said the government foresees the state-owned factories turning into white elephants in the near future unless emphasis is laid on private sector defence production under the 'Make in India' initiative.
Three different committees -- the T.K.S. Nair Committee in 2000, the Vijay Kelkar Committee in 2004, the Raman Puri Committee in 2015 -- have recommended overhauling the OFB in order to make the factories more competitive and market-oriented.
The committees suggested measures like giving Navaratna status to the OFB or splitting up the family of 41 factories to form three separate PSUs. The present dispensation is banking on the reports of these committees to go ahead with the corporatisation of the OFB.
The employees federations, however, cite the cases of Bharat Sanchar Nigam Limited (BSNL) and Hindustan Aeronautics Limited (HAL) to buttress their argument that corporatisation alone cannot lead to increase in competitiveness, revenues and employment generation.
But the government insists that corporatisation will lead to greater penetration for India in the defence export market and innovation for self-reliance in defence. It also argues that corporatisation will result in timely delivery of products, better utilisation of under-utilised capacities and greater flexibility in technology acquisition through overseas assets.
It also argues that corporatised factories may not require government funding for modernisation and research, thereby helping the entities become financially self-sufficient.
The government plans to form strategic alliances of the factories with Indian and overseas companies and provide the board Chairman with a fixed tenure for effective leadership and bold decision-making.