India Modi gets powerful ministers to push for ordnance factories corporatisation, amidst workers unrest

Photo: Logo of Ordnance Factory Board.

By N. C. Bipindra

New Delhi: In a clear indication of its strong will and intent to push ahead with the corporatisation of the state-run ordnance factories, India’s Narendra Modi government today set up a very powerful group of ministers headed by heavyweights such as Rajnath Singh and Amit Shah to see through the process.

The Empowered Group of Ministers (EGoM) for the corporatisation of the Ordnance Factory Board (OFB) has its terms cut out for converting the factories into either a single Defence Public Sector Undertaking (DPSU) or to divide it into multiple public sector ones.

The Modi government believes corporatisation will achieve efficiency and corporate accountability in the functioning of the OFB. At present, the OFB is a subordinate office of the Ministry of Defence‘s Department of Defence Production and is fully funded, owned and operated by the government.

The OFB is headquartered at Kolkata and is a conglomerate of 41 factories, nine training institutes, three Regional Marketing Centres and four Regional Controller of Safety.

The OFB manufactures critical arms and ammunition, including battle tanks and artillery guns, for the 1.4-million-strong armed forces of India. The OFB’s five-year order book position in June 2019 was Rs 26,487 crore ($3.6 billion) for the supply of ammunition, weapons, troops comfort items and armoured vehicles, a parliamentary standing committee report of Dec. 2019 said.

In comparison, the DPSUs — nine of them, including the Hindustan Aeronautics Limited and Mazagon Docks Shipbuilders Limited — enjoy a corporate management structure, with major shareholding by the government, though partial disinvestment has been carried out in a few of them, such as the Bharat Electronics Limited and BEML Limited, in the last 10 years.

The government had last year indicated its intention to corporatise OFB and a firm announcement in this regard came from Minister of Finance Nirmala Sitharaman in May this year when the stimulus package for rebooting the economy was made amidst the COVID-19 lock down crisis.

In an announcement to take forward that decision, the Modi government said it has constituted the EGoM to be headed by Minister of Defence Rajnath Singh.

Apart from Rajnath Singh, Minister of Home Affairs Amit Shah and Nirmala Sitharaman, the other ministers to be part of the EGOM are Minister for Law and Justice Ravi Shankar Prasad, Minister of State for Labour and Employment Santosh Kumar Gangwar and Minister of State for Personnel, Public Grievance and Pension Dr Jitendra Singh.

“Consequent to the decision of the government to convert Ordnance Factory Board (OFB), a subordinate office of Ministry of Defence (MoD) into one or more than one 100 per cent government-owned corporate entities, the government has constituted an Empowered Group of Ministers (EGoM), under the Chairmanship of Raksha Mantri (defence minister) Rajnath Singh, to oversee and guide the entire process, including transition support and redeployment plan of employees while safeguarding their wages and retirement benefits,” a Ministry of Defence statement said.

As is clear from the statement, the EGoM has been triggered by the unrest among the 82,000 employees of the OFB. After the May 2020 announcement by Sitharaman, the government had initiated talks with the workers’ unions regarding the corporatisation process. (Correction: An earlier version of this paragraph had claimed OFB has 164,000 employees. An OFB spokesperson has clarified on Sep. 12 that OFB has only 82,000 employees.)

In Aug. 2019, the employees unions had announced a shut down of work, unconvinced by the government’s assurances that their interests would be protected under corporatisation, which doesn’t mean privatisation.

The Terms of Reference of the EGoM include:

(1) Decision on conversion of OFB into a single Defence Public Sector Undertaking or as multiple DPSUs;

(2) Matters related to various categories of employees including protection of their salary and pension of existing employees;

(3) Financial support that may be provided to the entity/entities to make them economically viable and self-reliant;

(4) Grandfathering of orders already being executed by OFB or for which facilities created in OFB;

(5) Treatment for land assets of OFB.

The composition of EGoM along with Terms of Reference have been communicated to the OFB and various workers unions, federations, and associations at the OFB, Factory and Unit level and they have been requested to place all their suggestions, issues and concerns relating to corporatisation of OFB before the EGoM, the government statement said.

The Department of Defence Production had recently selected corporate advisory firm KPMG Advisory Services Private Limited as the Lead Consortium Member and Khaitan & Company Limited as another Consortium Member.

The Consortium will be the Consultancy Agency for providing strategic and implementation management consulting services to assist the Department of Defence Production in the process of corporatisation of the OFB.

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