AIDEF, BPMS And CDRA Counter Statement Of DDP About Profit Made By 6 Out Of 7 Ordnance Factory Corporations

Federation says true picture is different from what is claimed by the DDP

Countering the statement made by the Department of Defence Production last month that out of the 7 Ordnance Factory Corporations carved out of the erstwhile OFB 6 has shown profit within 6 months after its conversion to Corporation. The AIDEF, BPMS and CDRA which represents the workforce of the Ordnance Factories have today submitted a detailed Letter to the Defence Minister stating that the statement made by DDP is incorrect and that the true picture is different.

www.indianpsu.com accessed A copy of the Letter jointly issued by AIDEF, BPMS and CDRA to the Defence Minister. The contents of the same is published here for the benefit of our viewers.

To,
Hon’ble Shri Rajnath Singh Ji
Raksha Mantri, Government of India
104, South Block, New Delhi – 11
E-Mail: rmo@mod.nic.in

Subject : True picture of the 6 months progress of the splintered 7 Ordnance Factory Corporations.

Respected Sir,
The news of 6 out of 7 New DPSUs carved out of the erstwhile OFB have shown Profit has got wide coverage throughout Online, Print Media Portals as well as on various Social Media Portals. The above is claimed to have been based on provisional data of their working for past 6 months. It appears to be, prima facie, an extraordinary achievement since the same has been juxtaposed against the claim of loss incurred by Ordnance Factories under the OFB for the past 3 years before corporatisation.

Admirably, an over-enthusiastic headline was also made out to present this phenomenon “From White Elephant to Roaring Tiger…….”, as if the preliminary & initial data was good enough to believe the claim as truthful. The history of Industries & Commerce is abound with numerous such examples when a ‘White Elephant’ was transformed into a ‘Roaring Tiger’ or conversely, a Roaring Tiger not being able to adapt to the changing times transforming into a White Elephant. Most of these transformational experiences are taught in most of the Top Class National & Global B-Schools. Expectedly, drastic and magical transformation of these New DPSUs would seemingly secure its place into the list of those case studies. If the Claims of High-Ranking Officials of the Ministry of Defence are to be believed and the Preliminary & Initial Data are to be accepted as the true representation, it will be considered an unparallel & exceptional case falling into a category of “never been seen or heard” where such a revolutionary industrial restructuring transforming a White Elephant into a Roaring Tiger with such swiftness! Hence, the loud claim of miraculous phenomena needs close scrutiny and compelling to undertake an in-depth study of the same.

To explore all the aspects of truth behind the aforementioned ‘miraculous’ profit-making by the 06 New DPSUs, the followings are the relevant figures taken from Annual Accounts of erstwhile OFB till Sep’2021.

in CroresActual 2016-2017 FYActual 2017-2018 FYActual 2018-2019 FYActual 2019-2020 FYActual 2020-2021 FYActual 2021-2022 FY (upto Sep’2021)
Annual Account      
Total Income14617.0914801.1311760.308655.028773.701972.11
Total Expenditure14274.5614137.0813607.6111807.7613128.344884.37
Total Deficit/Surplus342.53664.05-1847.31-3152.75-4354.64-2912.26
HQRS Expenditure@ ₹ 145 Crores per Year (Approx)
Hospitals Expenditure@ ₹ 190 Crores per Year (Approx)
Schools Expenditure@ ₹ 52 Crores per Year (Approx)

 The tabulated data explicitly shows that for FYs 2016-2017 & 2017-2018, the OFB was in surplus of ₹342.53 Crores & ₹664.05 Crores respectively, i.e., till FY 2017-2018 OFs were not loss-making.

 It is worth mentioning that the claimed profits for the last 2 Quarters of 2021-2022 by the New DPSUs don’t include the expenditures incurred on Schools, Hospitals etc as the same is being borne by the Government. Whereas, during the FYs 2016-2017 & 2017-2018 or before the expenditure on schools, hospitals and employees of HQrs formation of erstwhile OFB were charged to their expenditure. Presently, the Government is bearing the liable for expenditure with regard to pensioners under the Old Pension Scheme even for the employees deemed deputed to the these 7 new DPSUs. However, expenditure of erstwhile OFB includes these as well.

 It is pertinent to mention that the apples and oranges are non-comparable. OFB & New DPSUs as well are incomparable until and unless a just and impartial yardstick/parameter of comparison are pre-decided. Therefore, the current comparison showing profits without setting just and impartial yardstick/parameters would be not only unfair but if done intentionally, it is to propagate half-truths or half-lies for some specific objective. If the comparison between New DPSUs and OFB is done excluding the expenses of Schools, Hospitals and Pension, etc. the surplus for FYs 2016-2017 & 2017-2018 will rise by ₹1100 Crores and the OFB will not qualify as the so-called “White Elephant” till FY 2017-2018.

 Similarly, from FY 2018-2019 to FY 2020-2021, the deficit will be drastically reduced if the expenses of Schools, Hospitals, Pensions, etc taken out from the annual expenditure shown above. Orders worth ₹3400 in the FY 2018-2019 were cancelled, mid-way by the Services and the expenditure got incurred on procuring materials against those orders hence the expenditure got recorded in its book of accounts, however, the final product couldn’t be issued.

 Normally, the Ammunition & Explosives Division and Armoured Vehicles Division of the erstwhile OFB have always been in surplus, The FYs 2019-2020 & 2020-2021 were heavily affected by the COVID-19 pandemic, in which the import of materials resulted in breaking of the national supply chain, sharp increase in price of materials, hiccups in supply of spare parts, equipment & machinery, etc. adversely influenced the operations of the OFB. Hence, the performance of the pandemic era can’t be show cased as representative of performance of erstwhile OFB.

 For the FY 2021-2022, till September total Expenditure was ₹4884.37 Crores while the issue was only to the extent of ₹1972.11 Crores, indicating that a huge portion of the work done under the erstwhile OFB was “Work in Progress” (WIP). These WIP products of OFB were finally issued by the new DPSUs to unfairly earn the credit of issuing it. Most of the procurement actions of all the direct and indirect production items were initiated immediately after the receipt of tentative orders from the Buyers (Usually by Jan-Feb of Every Year). Hence, the delivery of the items & payment for the same majorly were carried out on the accounts of the OFB and not the DPSUs. Has this expenditure made by OFB for future DPSUs been included in the accounts of the DPSUs? The cherry on the Top is that the DPSUs are not to incur any expenditure on accounts of Schools, Hospitals, Pension, etc. However, even in such circumstances, have the New DPSUs truly been in the profit as has been claimed?

 For example, the 06 DPSUs out of 07 (excluding Yantra India Limited) that have claimed to have gained profit have supplied items of only worth ₹3000 Crores out of the total orders worth ₹12000 Crores falling short ₹9000 Crores of the target. Despite this, profits can be earned in only 02 possible conditions- (It’s come to light that ‘slippages in deliveries’ are up to 47% to 100% for revenue & capital products. The same may be inquired into impartially by the Government of India):

a) Drastic Reduction in the Costs of Input Material to the DPSUs Compared to Previous years of OFB.

b) Unprecedented Rise in the Cost/Rate of Final Product.

 However, while the whole world is miserably suffering from inflation and price rise, the aforementioned hypotheses

(a) is infeasible and impossible. In such a scenario of Extremely High Input Costs and achievement of only 25% of the target, the Profit could still be achieved if and only if the Buyer (Armed Forces & Armed Police Forces) are happily willing to pay the Hiked Price as per our Hypothesis

(b) However, with no substantial increase in the budget/ financial outlay for the buyers, makes this Hypothesis

(b) infeasible and impossible. Any such drastic and sharp increase in prices would defeat the purpose of the corporatisation itself.

 For another example, if the Gliders India Limited, which is having only one Production Unit and around 1600 Employees, doesn’t have a turnover of ₹200 Crores, even reaching the Break-Even will not be possible considering the salaries and allowances of the employees (the factory has given a turnover of more ₹300 Crores once under OFB). Whereas, the GIL with only ₹120 Crores of approximate turnover in the FY 2021-2022, has claimed a profit of ₹40 Crores!

 All the government employees posted in the Factories & Operational Units were en-masse transferred to the DPSUs on 01/10/2021, with all the service benefits Status Quo Ante, with no change in the service conditions. However, except Salary every other benefit such as LTC Advance, Medical Reimbursement (Ridiculously Low Settlement Amount), Temporary Duty Allowances & Entitlements, Pension Contributions, Office Supplies, etc. have been delayed or not paid in time. Even the assurances given by the Hon’ble RM, decision of the Cabinet and the commitments given before the Hon’ble High Court are being violated by the Corporations, such as weekly working hours are being changed from 44¾ hours to 48 hours, Compassionate appointment are not being granted to the wards of deceased employees etc.

 Many of the DPSUs (AWEIL/MIL/TCL etc.) has indefinitely stopped or drastically reduced any new expenditure liability in the Maintenance of Buildings & Infrastructure, which has already started affecting the Employees in the workplace as well as their families at the residential estates.

 The payments towards the Micro, Small & Medium Enterprises have been withheld, delayed, or both by the DPSUs affecting the livelihood of the Enterprises. Several of the MSMEs have also gone into filing complaints against these DPSUs with the MSEFC for the delayed or no payments. In view of the above data & facts, the following quote by Famous Economist Ronald Coase seems to be the most suitable:

“The figures are innocent people who, under the solicitation, under torture, very quickly confess what is asked of them, even if it means retracting later.” In such a situation, is the provisional data from the new DPSUs a tormented data? Is his tormented data, instead of being an accurate representation of the facts, misrepresenting the profits under any undue influence and fear? Who wants to take all the credit without an in-depth assessment of the situation?

We are the Employees of an Organization, whose capabilities & leadership have persistently been under questioning and criticism in recent past. All possible efforts have been put in to shatter our morale and confidence. It has been propagated that the corporatization is the direct outcome of our failures. Why should we feel offended and hurt now that a claim is being made to have converted a White Elephant into a Roaring Tiger just within 06 Months? Where were High Ranking Officials of the DDP, who are now taking the credit for being the Magicians bringing about transformation, when the Ordnance Factories under their control were being mercilessly criticized in the last few years. The responsibility for the criticism must’ve been taken by the same High Ranking DDP Officials who are now claiming the Magical Profits.
Objective & impartial criticism have always been welcomed; however, we have always believed that those motivated merciless criticism was far from reality. Similarly, we disregard and reject the magical profits being claimed by the new DPSUs based on the provisional data, the truthfulness of which is under cloud. We are of the firm view that Ordnance Factories with all the non-support from DDP have always preformed, but in the past as is evident from the past parliamentary Standing Committee Reports. Therefore, we once again request that Ordnance Factories may please be brought back to the Government set up as was existing on 30/09/2021 and we are prepared to sit with the Government to find out ways and means for further improvement of the Ordnance Factories in the Government setup and reiterate our support and cooperation in this regard to the Government.

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