Corporatisation of Ordnance Factories would only accentuate the problem of the OFB

www.indianpsu.com had earlier published the letter penned by Dwarakanth former DGOF & Chairman of OFB about his concerns about the decision taken to Corporatise the Ordnance Factories. Today, www.indianpsu.com has got access to a copy of the Annexure given in his letter to the Defence Minister. This gives the total views of a person who was involved in Defence production for more than 35 years. While the Trade Unions of the Ordnance Factory Employees are in a battle field against the Government’s decision, it is prudent that the Defence Minister issue a direction to the Ministry of Defence Officials to dispassionately study the views and comments given by a veteran Engineer who is well conversant with the intricacies of the Defence Production and the Management of a Defence Industry. We are publishing the views expressed by K.Dwarakanth here for the benefit of our readers.

1) Any organisation has room for improvement through technological and structural changes. It is not clear on what basis Govt. has come to a conclusion that corporatization is the only way to achieve the objectives as enumerated in the EOI. One gets the impression that the end goal is predetermined and it is just a formality to give credence to an ill-conceived proposal by appointing a Consultant to come out with a road map to achieve the goal. The govt. also envisages that the Consultant would in a period of six months execute the plan. In a complex scenario as I foresee, it would be impossible to complete the task. The Consultant could get away scot free without any accountability.  The proper thing appears to be to have a term of reference to suggest the various options available before us, the pros and cons of the alternatives and the best option before the government in the Ordnance Factories context. Targeting Corporatisation as the only option, unfortunately gives a disturbed and wrong signal.

2) Capacity Utilization: If one were to go into basis on which Ordnance Factories are created, which I am sure the Govt. should be aware, the capacities were and are created based on war wastage reserve (WWR) and annual training requirements as estimated by the armed forces. Consequently, during an intense war, the capacities are fully utilized and cost of the overhead is distributed over the entire production. However, during peace time, the capacity utilization drastically comes down due to significantly reduced off-take from the armed forces as the magazines would be bursting at the seams and requirements limited by and large to meet the annual training requirements.

2.1 Intense wars are fought only for a few days and in certain cases followed by war of attrition for a longer period of time.

2.2 When capacities are created to meet the requirements of the armed forces only, the commercial viability is never a consideration. Export of weapon systems to use the available capacity was against the ethos of the country and consequently OFB served as a captive capacity to a dedicated end user viz the Armed Forces of India. Instances are galore where capital to turnover ratio of capacities created are topsy-turvy, and still, additional capacity is created and which is treated as “war insurance” to ramp up production at short notice and in a shortest span of time .This is done for ensuring Defence preparedness The capacity created is in most cases economically unviable and is off-set by the inbuilt surge capacity which is brought to the fore during war/war like situations. To put it succinctly, the capacities created are strategic in nature and not, repeat not, on commercial considerations and therefore not for commercial exploitations.

3) Cost comparison: Under the above circumstances, comparing the cost of ordnance factories with that of supplies from trade is comparing apples with oranges. With this, denigrating OFB as an ineffective organisation on cost consideration, and initiating a dialogue should stop once and for all. Nor can this factor be the reason/ rationale to decide on corporatization.

3.1) To the credit of Ordnance Factories, it should be stated that in most of the end store costs, OFB costs compare favorably vis-a-vis imported price and with costs of trade supplies.

4) Under such circumstances, corporatization would only accentuate the problem. A corporate entity functions as an autonomous body with all inputs that are required   under its control and with authority to ensure that;
a) There is a continual evaluation of the products under its range and to improve the quality of the product to 1) outgun the adversaries and 2) ensure state of the art functional quality parameters so that they are relevant in the global scenario.
b) Continuous value engineering of the products to effect cost control measures to stay competitive on cost considerations

4.1) But it is a pity that OFB continues to be a production agency with both ends of the spectrum dangling. R&D is totally outside the control and all the futuristic planning outside the control of OFB.

4.2) There are neither any products of DRDO origin in OFB in the production line nor are there any which can compete with global competitors and saleable in the world market.

5) Technology Transfer and Delays: If there are delays in development and marketing of a product, in a civilian market, the company at the best may lose its market share, but the delays in development of a strategic product, impinge on the national security as the territorial integrity is endangered. The concept to commissioning period of products developed by DRDO hovers around 20 to 36 years, a time span which is impossible to accept. We may have to write off the product due to sheer obsolescence. Even in these cases, the technology transfer is incomplete/ faulty and invariably the indigenization is incomplete with critical systems/ subsystems continue to be imported and entire development work redone to meet the GSQR. Instances in point are:

a) 5.56mm ammn. is a classic case in point. The so called TOT after a long period of 20 years of development was decidedly faulty. The cartridge case dimensions were such that the bulk density could not be achieved and consequently loadability of appropriate quantity of propellant became a problem.  We could not, therefore, achieve the terminal ballistics and ensure achievement of the end specification needs. It is to the credit of OF officers who detected the cause and started retooling of the machines to manufacture the cartridge case to the revised design. In the interim, I had requested the then COAS to consider accepting the ammunition to a reduced specification which meets NATO standards but falling short of the pre-designed performance criteria.

b) After almost 16 years of development process, DRDO regretted their inability to overcome the problem of cartridge case ejection within the desired parameters and Army, for valid reasons, rejected the ammunition without rectifying the defect as it would endanger the life of the jawans.

The development work was then transferred to OFB in one of the meetings held in early 1990s when Late Shri Abdul Kalam was also present and the problem was solved in just ten days. The then Secretary DP, made a special visit to Calcutta to attend a presentation made by the officer who solved the problem (Mr. Prasanta Das, GM RFI) and declared a cash award for his outstanding work.

This is just an illustration to prove the point that OFB has outstanding officers with capability and commitment to take on R&D functions with consummate ease.

c) LCA has taken 36 years for its development and yet the critical systems are yet to be indigenized. Instances are galore and would require a separate discussion on this subject. MBT Arjun, Cluster Bomb, LCA are a few more instances in point. Suffice to say that hardly any reliable R&D support is available from DRDO to the OFB, and being in the tail end of the production line, it is blamed for all the ills of other agencies like DRDO who have no accountability.

d) There is hardly any product in OFB of DRDO origin which meets international standards. This incidentally, affects the capacity utilization and the potential for export.

e) On the other hand, TOT to ordnance factories, by the foreign firms in respect of their products, is done smoothly and production of end products is established without any delay. TOT in respect of Bofors gun and ammunition, 7.62 Mag gun, Tanks, etc. are just a few examples.

6) Quality: Quality is a function of many a factors like a) design, b) manufacturing processes employed, c) plant and machinery employed and its condition, d)manufacturing tolerances prescribed in the drawings, e) the raw materials specified, f) skills of the man power employed etc. Of these, the most important are design and drawings, and the specified raw materials. Despite the use of old plant and machinery available in Ordnance factories, in respect of all the established items of production, the stringent quality parameters are met. In respect of the products of imported origin, where the foreign firms have transferred the technology to the ordnance factories, the quality parameters are fully maintained. It is only the new items where the design and development has been made by DRDO, the quality problems arise and it is unfair to hold OFB responsible for the same.

6.1) Each and every weapon, ordnance, vehicle, tank, and such other item, excepting ammunition, is individually subjected to testing and inspection by the DGQA. So, if at all any quality problem arises in respect of these items, it should be the responsibility of the DGQA to answer. Only when the responsibility for testing and final inspection along with the necessary infrastructure and the firing ranges etc. are passed on to the OFB, it can be held responsible for the quality problems if any.

a) When OFB is made fully responsible for the final inspection and DGQA accepts the issues on the basis of self-certification by the OFB, the quality problems may not exists or will be minimal.

7) Without removing all the external controls, without integrating all the functions within the OFB, without creating a level playing field for OFB as far as orders from the armed forces are concerned, it would be a pipe dream that OFB would be successful if listed on the stock exchange .The costs are bound to be higher because of the very charter of the OFB and reduced off take from Armed forces during peace time. Consequently, sale of products ex OFB would end up in continued losses and not in a distant future the Net Asset Value of OFB would turn negative. Surely this is not the intention of the govt. It would be a huge national loss if it were to happen. Not only the only reliable supplier would be liquidated for good, but the skills developed over a period of decades would be destroyed. The work force of OFB is the greatest asset of the nation and cannot think of such talent in the country being nullified by an act of hasty conclusion. In fact, the first nail in the coffin of OFB was hammered when the much applauded apprentice scheme and boy artisan scheme which were churning top class first line supervision staff and skilled shop floor workforce was disbanded.

8) A note of caution is called for at this precipitous juncture. The writing is on the wall. Since, 1991, when liberalization was announced, the entry of foreign participation in Defence production is almost next to nothing ($1.5 billion). It is unlikely that in future, there would be any substantial improvement. There are only a few Defence equipment manufacturers/ countries in the world and they dictate the market. They are not going to part with their technology at the peril of their market drooping down. Alternately, they would come up with technology transfer of obsolescent/ likely to be obsolescent products and we would be burdened with such sick production lines for decades to come. At best, they may consider providing technology for component /sub-system manufacturing retaining the final assembly and marketing to themselves. We would have to then resign ourselves to a “jobbing unit” and deny ourselves the goal of reaching self-sufficiency and establish a “Brand Equity”. In the process, we would be annihilating the capabilities we have fostered and nurtured over a long period.
Summary:

1) Most of the time, OFB operates in a peace time scenario, and capacity utilization is well below the capacities created.Costs are bound to be relatively higher due to absorption of fixed overheads over a lower off-take. The private sector companies when offered long term workload to enable them to create optimum dedicated capacity for a single product will obviously supply the product at a lower cost and comparing their prices with that of OFB is to say the least a misguided comparison.

2) The problem can be clearly identified and the solution is in front of us. Convert OFB into an industry from its mutilated presence of just a production unit. Ensure that authority and responsibility are co-terminus and then make OFB accountable. R&D functions should be brought under OFB and retain DRDO for mission projects if the Govt. feel so though, the ideal solution is to make DRDO a commercial organisation and should be asked to compete and collaborate with other R&D institutions. This would be an ideal move towards bringing accountability in this organisation and hasten the process of modernization. OFB should be the ultimate authority to certify the quality of the product and be held responsible for quality of the product.

3) Where Army requirements justify, OFB should get into arrangements with the foreign suppliers for TOT, preferably with buy back provisions. However as brought out in para 8 above, necessary precaution should be taken to ensure that we are not landed with obsolescent products or technologies

4) OFB should be the ultimate authority to certify the quality of the product and be held responsible for quality of the product. You would agree that quality is built into a product during production and not production built into quality.

5) At this critical juncture, when we are faced with aggression at the borders, strengthen the existing setup of OFB and provide them the financial muzzle and administrative authority to continue to serve the nation with improved efficacy. They would never let down our motherland.