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Formed in 2021, 7 new defence PSUs to see steep decline in orders, finds Parliament panel

DPSUs were formed after restructuring of Ordnance Factory Board. While most recorded profits in first six months, exports have also been declining, says govt.

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New Delhi: The seven new defence public sector undertakings (DPSUs) — formed following a restructuring of the Ordnance Factory Board (OFB) in 2021 — will experience a “steep decline” in their orders over the next five years, according to a parliamentary panel report. 

The Standing Committee on Defence, headed by Jual Oram, a Bharatiya Janata Party (BJP) MP from Odisha, has recommended that these companies be promoted abroad to ensure that their manufacturing skills are retained and their capacity fully utilised.

The DPSUs were formed following a 2021 Union Cabinet approval for the restructuring of the over-200-year-old OFB — which operated 41 ammunition and military equipment production facilities — in order to improve accountability, efficiency and competitiveness.

The new companies — Munitions India Ltd (MIL), Armoured Vehicles Nigam Ltd (AVANI), Advanced Weapons and Equipment India Ltd (AWEIL), Troop Comforts Ltd (TCL), Yantra India Ltd (YIL), India Optel Ltd (IOL), and Gliders India Limited (GIL) — commenced operations from 1 October that year.

The report, put together by the Standing Committee on Defence on demands for grants of the Ministry of Defence for 2023-24, and titled ‘Directorate of Ordnance (Coordination and Services) — New DPSUs, Defence Research and Development Organisation and National Cadet Corps’, was submitted in Parliament last week.

Meanwhile, a goverment release has also mentioned that even as most of the firms recorded profits in their first six months, their exports have also been declining. 

Also read: Made-in-India ATAGS, BrahMos, choppers: Modi govt clears defence acquisitions worth Rs 70,500 cr

Order book position

“From the information furnished by the Ministry of Defence on the order book position for the newly created DPSUs for the next five years, it is found that there is a steep decline in those of AWEIL, TCL and IOL. There is a  ‘NIL’ order book position registered for TCL from 2026-2028. The same position exists for MIL during this period. GIL also has ‘Nil’ orders for 2027-28,” the committee said.

A comparison of the order book status of the DPSUs in 2023-24 and 2027-28 shows a steep drop. The order book for MIL is down to nil in 2027-28 from Rs 6,788.81 crore in 2023-24.  

The order book of AVNL dropped to Rs 560 crore from Rs 5,065.40 crore. That of AWEIL shrank to Rs 385 crore from Rs 1,915 crore, for TCL it went to zero from Rs 88.89 crore, and for IOL, the order book came down to Rs 8.39 crore from Rs 2,004.98 crore. For GIL, too it came down to zero from Rs 131.5 crore.

In the report, the committee also noted that exports by the new DPSUs are shrinking year by year. The exports stood at only Rs. 81.08 crore in 2021-22 from Rs 94.61 crore in 2020-21, which was down from Rs 140.94 crore in 2019-20.

“The committee understands that primarily the DPSUs are to supply arms and ammunition to the Indian Armed Forces but exports give the country not only the name but precious foreign exchange too. Therefore, the committee recommends that more emphasis should be given to increase exports,” it said.

Finding way out

Noting that the new DPSUs are designed and dedicated for the special purpose of fulfilling the requirements of defence forces, especially the Army, and play a vital role during wartime, the committee recommended that “the Department of Defence Production should start promoting these PSUs outside the country through Defence Attaché or Ambassadors/High Commissioners.” 

This, it said, would assure “adequate export orders besides domestic demand…so that the manufacturing skills of new DPSUs are retained and their capacity is fully utilised”.

It must be noted that any work given to the earlier OFB is now considered a deemed contract for the new DPSUs. 

However, no provision for profit has been made in these deemed contracts. “Therefore, the committee desires that for long-term sustainable growth and ensuring commercial viability of these new entities, it shall be desirable to include a reasonable profit element which in the express opinion of the committee must be around 7 per cent in the deemed contracts since the same is already being made available to earlier existing nine DPSUs.” 

Support to DPSUs

According to an official release, all of these companies, except YIL, reported provisional profits during the initial six months of their business, i.e., 1 October 2021 to 31 March 2022. 

In a statement issued in April 2022, the government said it had taken various steps to initially handhold and support these new defence companies in starting their business as corporate entities. 

“Within the first six months, these new companies have achieved the turnover of more than Rs 8,400 crore…From day one itself, these companies have started exploring new markets and expanding their business, including exports. Within a short time since their inception, these companies have been able to secure domestic contracts and export orders valuing more than Rs 3,000 crore and Rs 600 crore respectively,” it added.

(Edited by Smriti Sinha)

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