Privatising OFB: Defence ministry pushes ahead, workers push back

MoD announces appointment of consultants for corporatising Ordnance Factory Board; workers threaten indefinite strike from October 12

Moving ahead with a longstanding proposal to corporatise the Ordnance Factory Board (OFB) and its 41 factories dotted around the country, the Ministry of Defence (MoD) on Thursday announced the appointment of private sector consultants that would advise the government on how to proceed.

“The department has selected KPMG Advisory Services Pvt Ltd (Lead Consortium Member) with Khaitan & Co Ltd as consortium member, as the consultancy agency for the project,” the MoD announced on Thursday.

“The contract with the consultancy agency would be signed shortly,” it said, after which work would begin on corporatising the OFB.

The move is being strongly resisted by the OFB’s 82,000 workers, who have called an indefinite strike from October 12.

Since Independence, the OFB and its factories have been wholly owned by the MoD. They manufacture defence equipment to meet indents placed by the three services, which pay them on a “cost plus” basis.

The military has often complained, and the MoD has agreed, that the OFB’s cost of production is too high because its production value per employee is too low.

Corporatisation involves switching from this model to the defence public sector undertaking (DPSU) model. DPSUs are not owned by the MoD, but they sign a Memorandum of Understanding (MoU) with the ministry every year, which commits them to achieve the negotiated production targets.

The proposal to corporatise the OFB has been heavily contested by its employees since the Vijay Kelkar Committee mooted it in 2005-06. At that time, the proposal was shelved after OFB employee unions threatened to strike.

It was taken up again by the Bharatiya Janata Party (BJP)-led government in 2014, but faced strong resistance from OFB’s 80,000 workers and 1,500 officers.

The Indian Ordnance Factory Service (IOFS) Association has written multiple letters to the defence minister, arguing that the OFB was not created to function on a commercial basis, but to provide a strategic surge capacity for wartime, when its large number of workers could produce the large volumes of arms, ammunition and warlike stores that the military would suddenly need.

The IOFS points out that the OFB model involves identifying a requirement, concluding a tender for transfer of technology (ToT) to the OFB and then manufacturing the equipment to fulfil tenders placed by the military.

However, if the military does not place tenders, the OFB’s production capacity remains under-utilised for reasons over which it has no control.

OFB officials cite the example of OF Korwa, which was set up to manufacture Close Quarter Battle (CQB) Carbines but remains without orders. The cost of the establishment, however, is paid by the MoD.

In 2018-19, when the government resumed pushing OFB corporatisation, the OFB workers’ unions threatened a strike from August 20, 2019. On August 16, 2019, the MoD told Parliament it had met and negotiated with OFB unions and that there was no move to privatise the OFB. The MoD said it would “keep the process of dialogue open to arrive at a mutual understanding”.

On May 16, Finance Minister Nirmala Sitharaman again announced corporatisation of OFB amongst a series of measures to galvanise the defence industry. This would “improve the autonomy, accountability and efficiency of ordnance supplies,” she said.

On August 27, Prime Minister Narendra Modi himself committed to corporatising the OFB: “For decades, Ordnance Factories were run like government departments… Now we are moving towards corporatising these factories.”