Why corporatisation of Ordnance Factory Board will not go the BSNL way?

COL KV KUBER, Indian Army Veteran

Recently, the Department of Defence Production, Ministry of Defence (MoD) issued an Expression of Interest-cum-Request for Proposal inviting bids from India-based consulting agencies to provide management consulting services covering topics like strategic future growth, optimal operational strategy, organisational restructuring and other related implementation issues with respect to transition management, financing, and legal aspects, in keeping with its announcement to convert the Ordnance Factory Board (OFB) into one or more Government-owned corporate entities registered under the Companies Act, 2013.

OFB is amongst the largest industry groups in the world, with 41 factories and 32 other establishments, as training and certification assets. They produce tanks, artillery guns, small arms and weapons of several types and ammunition, troop comfort equipment like uniforms, tents and boots. In summary, The Ordnance Factories Organization is a blend of old and state-of-the-art factories, with the first Ordnance Factory established in 1801 at Cossipore, near Kolkata, and two new ordnance factories are coming up at Nalanda in Bihar and Korwa in Uttar Pradesh, respectively. Ordnance Factory Board supplies the items to the Services based on mutually agreed targets fixed on a yearly basis in consultation with Services and within the latter’s available budget.

The corporatisation of the OFB will bring it at par with other DPSUs of MoD. The structure will provide operational freedom and flexibility to make the OFB into a competitive, productive and efficient organization with higher turnover and enhanced profitability.

The MoD has a history of successful enterprises in the DPSUs and all of them have repeatedly performed better in each passing year.

A vibrant private sector today is threatening the very existence of government entities. Time overruns, cost overruns, disrespect to quality are normally associated with government-owned businesses, a familiar story. The private sector has changed this equation in less than a decade, with companies like L&T delivering high-quality military platforms ahead of schedule. Need for increasing efficiencies has never been felt more eagerly than now.

The three basic pillars of corporatisation constitute the Management, the Board of Directors and the Shareholders (in the instant case it will be the stakeholders). Therefore, the government will need to look at the first two pillars i.e the Management and the Board of Directors. The management would, of course, remain with the Department of Defence Production (DPP) but there would be a need to include professionals from the industry, on the Board of Directors. Further, the primary stakeholders i.e. the Indian Armed Forces would also be required to be a part of the Board of Directors. This will ensure greater accountability and responsibility in the functioning of the OFB. The restructured OFB will also need to assume a greater responsibility towards price and quality control.

The idea of bringing in competitiveness and self-reliance through corporatisation of Bharat Sanchar Nigam Limited (BSNL), which assumed business from the erstwhile Central Government Departments of Telecom Services (DTS) and Telecom Operations (DTO), was the business news in 2000. Bharat Sanchar Nigam Ltd’s profits have declined after its corporatisation, mainly on account of the sharp increase in wages, higher depreciation rates, provision of bad debts and wealth tax, Lok Sabha was informed in August 2003. This was attributed to the increase in expenditure due to increased wages being paid to the Group C and D staff, higher depreciation rates, provision of bad debts and wealth tax and the revenue per user of BSNL had declined due to the drastic reduction in call charges.

Will OFB and the Ordnance factories (OFs) meet with the same fate as BSNL?

Let us examine some critical aspects.

OFs are a strategic asset of the nation with capabilities in niche areas, such as arms, ammunition, tanks, guns, charges, while BSNL had just one discipline in the entire telecom range.

OFs service a single customer, Indian Armed Forces/GOI; whereas BSNL services a community, was market driven by nature.

OFs hold a monopoly in the areas they specialise in, with highly customised machinery, speciality equipment and highly skilled workers; while BSNL was in generic discipline expertise, which was available elsewhere in the country.

Telecom revolution in the 1990s created synergy in the communications and electronics space for a booming private sector, while the defence industry is still closely guarded with plenty of entry barriers.

OFs have numerous opportunities for exports in every discipline they are in, for a multitude of countries, while BSNL has very limited exposure in revenue generation beyond the geography.

OFs can reach out to para-military forces, police forces and corporate security and expand their customer base in a few select disciplines, while BSNL has few options.

OFs enjoy a first-mover advantage and remainder of the industry would take considerable time due to entry barriers; while the field of play was open in case of BSNL.

OFs are already diversified in terms of products and services, while BSNL was a single discipline entity.

OFs as is the case with other DPSUs, enjoy the support of the Department of Defence Production, the Indian Armed Forces, MHA while BSNL had to rely on a free customer base.

Employee skillset in OFs is of very high quality with matching infrastructure and machinery, huge real estate for expansion in future; while BSNL although also enjoyed highly qualified manpower, did not have adequate leeway for future expansion.

OFs operate in the conventional discipline where the technology obsolescence rate is in at least a decade or more; while the obsolescence of communication technologies was in a few months if not days. This was a major set back for BSNL.

OFs have technology collaboration with few foreign countries mostly Russia, besides DRDO to sustain and enhance technologies, while BSNL had little R&D support from the government. The technology collaboration with foreign countries are of a long-standing nature and would sustain OFs for more than two decades.

So will corporatisation of OFs go the BSNL way? The answer is in the obvious negative.

Does India want to soon have an Indian entity that will cater to the needs of Indian Armed Forces, Indian Para-military, Police and that of a few other nations, dominating the Defence space? The time is nearer than ever.