In one of its biggest defence reforms, the Narendra Modi government dissolved the Ordnance Factory Board and transferred its 41 Indian Ordnance Factories, nine training institutes, five regional controllers of safety, three regional marketing centres, 80,000 employees and all other assets to seven Defence Public Sector Undertakings.
The Ordnance Factory Board (OFB) controlled bulk of the government-owned defence production base, which has not kept pace with time when it comes to technology, quality, and efficiency. The fact that we are one of the largest importers of arms in the world reflects on the poor state of our defence manufacturing infrastructure. Corporatisation of the OFB is a major step towards self-reliance in defence production. What is more heartening to note is that the process to bring about this reform has been very methodical.
I analyse the significance of this benchmark reform and the way forward to meet the challenges in execution to achieve self-sufficiency in production of weapons, equipment, and stores for India’s defence.
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A benchmark reform
As the armed forces began their second modernisation in the mid-1980s, it became clear that our defence production base, particularly the OFB, lacked the infrastructure, technology, and work culture to meet India’s requirements. The ever-increasing defence imports rang alarm bells for the government. Yet, despite the recommendation of a number of committees, successive coalition governments dithered due to bureaucratic inertia and fears of workers’ unrest. The Modi government, in its first term, did no better.
Even as we were struggling to complete the mid-1980s reforms through imports, the rapid advances in military technology and changing nature of war forced the third major reforms upon the armed forces. Our economy and development budget place severe limits on defence expenditure. Let alone increase, it has shrunk in real terms due to inflation and rising salary and pension bills.
The 2019 Balakot Air Strikes and the air skirmish the next day ended in a stalemate. The only thing that we could provide credible evidence for, was our intent and resolve. But what purpose does resolve serve without matching capability?
When we were on the brink of war in Eastern Ladakh, the huge differential in technological military capability vis-a-vis China limited our options to merely rushing to the front with large number of troops. While the government, after these military setbacks, carried the day with the public relying upon rhetoric and nationalistic/patriotic emotions, the lesson was very clear – reform or perish. To this end, “atmanirbharta” in defence became a compulsion and not a choice. Above notwithstanding, in its second term, the Modi government has shown great resolve in initiating defence reforms.
There is nothing to say in the defence of the OFB. I have suffered and followed its decline in quality from average in the early 1970s to below average by the 1980s and unacceptable by the turn of the century. Let alone the quality of personal clothing and equipment, the Indian Ordnance Factories (IOFs) even failed to adhere to standard sizes. We are the only armed forces in the world that supplies cloth to soldiers who get their own uniforms stitched. The combat boots are based on a design and material that was developed in the 1890s. Our soldiers, in terms of personal clothing and combat gear, are among the worst equipped in the world.
The INSAS rifle, a poor copy of the AK-47, splattered oil into the eyes when fired even five years after its introduction. In 2005, in my formation, we had to fix a rexine eye patch to prevent the same. There was a drop of 15-20 per cent in quality while assembling completely knocked-down kits of armoured vehicles, vis-a-vis the imported version. The loss in quality increased to 25-30 per cent when these were manufactured through transfer of technology.
The four-decade saga of the development of the Arjun tank to acceptable standards only proves the point. The Dhanush artillery gun was developed in-house by the OFB in 2010 based on transfer of technology that came with the Bofors gun in 1987. After prolonged trials, it was approved for series production in February 2019. An order was placed for 114 guns. Two and half years later, not even the requirement of 18 guns for one regiment has been.
About the quality of the ammunition, the lesser said the better. Since 2014, 27 soldiers were killed in 403 accidents due to faulty ammunition and 159 wounded apart from the cumulative losses of Rs 960 crore.
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The way forward
The real challenge for the government is going to be the execution of corporatisation. The government’s experience with corporatisation does not inspire confidence. Air India and BSNL are notable examples. The performance of the existing DPSUs is barely average. The model the government should focus on is the Atomic Energy and ISRO commissions.
The process should be as radical as the decision. The government will have to invest heavily to modernise the new DPSUs. Some of the redundant IOFs must be wound up and real estate sold to raise funds, and some may even have to be privatised. In my view, the IOFs should be reduced by half. Ministry of Defence should aggressively exploit the public-private partnership model, including with foreign collaborators, to overcome the shortage of funds and infuse modern military technology.
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The bane of the OFB was poor management and a large inefficient workforce of 80,000 employees whose wage bill was Rs 7,000 crore. The new DPSUs will continue to carry this burden. A government department can sustain this burden, but a corporate entity cannot. It may be prudent to opt for an attractive retirement package without pension. The best from the private sector must be inducted to manage the DPSUs. The GOCO – Government Owned Contractor Operated – model is also a viable alternative.
It is empirical wisdom that a defence industrial base cannot be sustained unless it has an export market. To have an export market, it must produce state-of-the-art equipment. This requirement again points towards strategic partnership with foreign defence manufacturers. India is the 23rd-largest exporter of arms, but its share of the market is only 0.17 per cent. The government has reviewed its arms export policy and set a target of exports at $5 billion by 2024. In my view, a target of $10-15 billion, roughly equal to our current annual defence capital expenditure, is achievable in a decade.
India has initiated a number of reforms for achieving self-sufficiency in defence. The Defence Acquisition Procedure 2020 is a comprehensive document, but it focuses on procurement and negative import list is only an incentive. However, the drivers for indigenisation are going to be technology, funds and revamping of the public and private defence industrial base. Enhancement of indigenous research and development, strategic partnership with foreign defence corporations and enhanced public-private partnership is the way forward.
The Centre is well on course and must not hesitate to further reform the process. I see no reason as to why in the next decade we cannot achieve a target of 75 per cent indigenisation. We will do well to remember that ideas are born out of intellect, but execution is a factor of will, which is rooted in character.
Lt Gen H S Panag PVSM, AVSM (R) served in the Indian Army for 40 years. He was GOC in C Northern Command and Central Command. Post-retirement, he was Member of Armed Forces Tribunal. Views are personal.
(Edited by Neera Majumdar)