Privatisation of ammunition manufacture kicks off in Delhi

In the government’s first high-level interaction with private firms on plans to tender ~170 billion worth of ammunition with the private sector, Defence Minister Nirmala Sitharaman was careful to placate the defence ministry-owned Ordnance Factory Board (OFB) and defence public sector undertakings (DPSUs), which have traditionally monopolised ammunition manufacture.

Addressing a Ficci-organised seminar in Delhi on Monday, Sitharaman pointedly said OFB and DPSUs have “immense opportunities and immense assets”, with which they can meet most of the military’s requirements. 

“However, they need revitalising, they need re-energising, they need to be dynamic,” she added.

Private sector firms looking at winning a piece of this lucrative order — there are 37 private companies with defence production licences — are eagerly awaiting a final corrigendum to the tender (called request for proposals, or RFP) that the ministry floated a year ago.

The tender relates to 21 different types of ammunition in eight broad categories, including small arms, Pinaka rockets, and tank and artillery ammunition.

Seven corrigenda have been issued in December-January. A final one would be issued “within a month”, said Lieutenant General Giri Raj Singh, the army’s top ammunition stockholder. A month after that, tenders are likely to be opened.

Sitharaman said the ministry had given the go-ahead for commencing the procurement of 860,000 small arms for the infantry. That category includes assault rifles, carbines, and light machine guns.

“This entire quantity has been earmarked for Indian industry, excluding the OFB,” she said.

The ammunition order is linked directly with the small arms acquisition, for which the army will need a large amount of 7.62 millimetre bullets, not just to use but to build up the mandated stocks needed for a 40-day intense war.

For three decades, the army has been using smaller 5.56 millimetre bullets, fired from the OFB-built INSAS rifle. But, as Major General Ajay Ohri of the infantry directorate explained to industrialists, the smaller bullet had proven insufficient to stop militants in Kashmir, even after they had been shot twice or thrice.

That is why the army is returning to the larger 7.62-millimetre assault rifle, especially for frontline infantry soldiers.

However, private firms worry that the OFB will enjoy an advantage in bidding against them for the small arms ammunition order. Twenty five per cent of that order is “nominated” to the OFB, which is also permitted to bid competitively for the remaining 75 per cent.

Private firm executives complain, off the record, that the financial buffer obtained from an assured 25 per cent of the order would allow the OFB to underbid for the remaining 75 per cent.

Long criticised for inefficiency and costly production, the OFB is exiting production in 275 “non-core” areas, which include clothing, boots, and webbing equipment. However, the defence ministry, which owns the 41 ordnance factories, is bound by procurement regulations to first buy the OFB’s entire production in “core areas” like ammunition and weaponry before turning to the private sector, or to import.