Travesty of a slogan

The National Democratic Alliance government’s policies seem geared to outsourcing the critical procurement needs of the Indian Army to the private sector and not to encouraging production in the public sector, belying the lofty objectives of Make in India.

Some the raw materials and finished products lying in ordnance factories waiting to be delivered. Until recently, the OFB and its factories were the primary unit through which defence production was conducted.

“ Self-relianceis a majorcorner stone on which the military capability of any nation rests. Accordingly, the Defence Production Policy promulgated by the Government aims at achieving substantive self-reliance in the design, development and production of equipment, weapon systems, platforms required for defence in as early a time frame as possible, creating conditions conducive for private industry to play an active role in this endeavour; enhancing potential of SMEs [small and medium enterprises] in indigenisation and broadening the defence R&D base of the country.

“Defence manufacturing is primarily driven by capital acquisition of defence equipment. Under ‘Make in India’ initiative of the Government, several measures have been taken to promote indigenous design, development and manufacture of defence equipment in the country by harnessing the capabilities of the public and private sector. These measures include according preference to procurement from Indian vendors under the Defence Procurement Procedure (DPP), simplification of Make procedure, introduction of simplified procedure for Make II sub-category, liberalisation of the licensing regime and FDI [foreign direct investment] policy by raising the cap on FDI in the defence sector, simplification of export procedure, streamlining of defence offset guidelines, etc. Recently, the Government has notified the ‘Strategic Partnership (SP)’ Model which envisages establishment of long-term strategic partnerships with Indian entities through a transparent and competitive process, wherein they would tie up with global Original Equipment Manufacturers (OEMs) to seek technology transfers to set up domestic manufacturing infrastructure and supply chains.” From a written reply given to Parliament by Dr Subhash Bhamre, Minister of State, Ministry of Defence, on February 7, 2018.

This reply by a junior Minister in the Ministry of Defence was perhaps the earliest indication that the government was planning to involve the private sector in defence production and procurement. The Rafale deal was an international manifestation of India’s domestic defence policy, which appears heavily tilted towards facilitating the private sector under the cloak of “Make in India”, all the while undercutting defence production in the public sector. The joint venture between Dassault Aviation and Reliance is just another example of such undercutting.

Of late, the government, citing cost issues, has been decreasing the production workload in the 41 ordnance factories that come under the Ordnance Factory Board (OFB), Kolkata, and this has engineered a crisis that threatens to affect the livelihoods of close to 91,000 employees and puts at risk the future of the micro, small and medium enterprises (MSMEs) that produce ammunition and other products on the basis of orders from the OFB. That is one reason why four lakh defence employees have declared a series of protests that will begin in November and culminate in a three-day strike in January. All this seems to run contrary to the stated objective of Make in India. Ordnance factories produce weapons, including small and medium calibre weapons, for land, air and marine defence systems. They also produce all troop comfort items for the Army combat uniform, parachutes, extreme climate clothing, tents, blankets and boots. All the five factories producing these items have been certified by the National Accreditation Board for Testing and Calibration Laboratories.

Declining workload

The central issues of the protest have been the declining workload and certain policy changes such as outsourcing the production of items earlier made by the OFB. The orders for defence production are placed by the government and the Master General of Ordnance (or MGO, a senior ranking position in the Indian Army) and are a “genuine domain of the state”. The defence production and procurement market, therefore, is different from any other commercial place of transaction. Until recently, the OFB and its ordnance factories were the primary unit through which indigenous defence production was conducted. The National Democratic Alliance government declared 39 of the 87 items the OFB produced as “non-core” and outsourced their production as a consequence of the change in policy. The decision relating to the 39 items was taken in April 2017 and communicated through a circular from the Department of Defence Production. These items can now be purchased from “trade”, that is the open market. Earlier, the Army needed a no-objection certificate from the OFB if it wanted to procure items from any vendor other than the ordnance factories.

On October 15, a delegation from the All India Defence Employees Federation (AIDEF) met with the MGO at the Army headquarters with a list of demands. The principal demand was a request to “save the ordnance factories from the present crisis by providing them with sufficient workload”. The MGO was requested to place indent (of production) to all ordnance factories, implement the five year roll on indent (that is, the Indian Army should place orders for ammunition with the OFB for five years) and a five-year period to convert existing production lines of the Ordnance Equipment Group of factories to new items. Another demand was for training and redeployment of the workforce to be undertaken in the same factory.

Interestingly, on February 5, replying to a question on the “shortage of ammunition for armed forces”, Minister Bhamre told Parliament that “some of the measures taken to ensure adequate availability of ammunition include placing of a Five Year Roll On Indent on Ordnance Factory Board, finalisation of Ammunition Road Map in respect of certain identified ammunition and procurements thereof. In addition, financial powers to ensure the availability and maintenance of minimum levels of critical ammunition have been delegated to the Armed Forces to meet any emergent requirement and to enable preparedness at all times.”

Therefore, despite the government taking a stand on five year roll on indent in February, the issue made no progress after that, which was why the AIDEF raised it with the MGO. The response of the MGO and the Additional Director General, according to AIDEF general secretary Srikumar, a former defence serviceman, was that the Army wanted the ordnance factories to continue and to be expanded, but the government had decided to procure items from private suppliers at lower prices. The Army, Srikumar told Frontline , had expressed its confidence in the ordnance factories and preferred procurement from them provided the items were cost-effective and of good quality and their delivery was timely.

In addition, the AIDEF was told that the Army would have no objections if the Ministry of Defence agreed to change the costing system. Also, if the OFB wanted to participate in the tender process for the production of “non-core” items, it could do so. It could also work out “its reorientation plan to produce items that were imported”. The message from the government was that there would be no rolling back of the decision on the 39 items; yet the MGO assured the AIDEF delegation that the Army wanted ordnance factories to remain open and expand.

Srikumar told Frontline that the workforce in ordnance factories was selected through a stringent process, permanently deployed and exclusively trained to produce military clothing and equipment. “They are committed and dedicated to the production of quality items unlike the workforce in the private sector where generally casual, contract, unskilled and floating labour are employed,” he said. By declaring 39 items non-core, the fate of five ordnance equipment factories had been sealed, he said. A private cloth mill owner, he said, was supplying 3.5 metres of OG polyester cloth at a cost of Rs.800 to soldiers through the Canteen Stores Department while the Ordnance Equipment Group factories could produce and supply the same quantity of the same quality for Rs.450. Similarly, he said that for almost 20 years the vehicle factory in Jabalpur had been exclusively manufacturing B category vehicles through a “transfer of technology” arrangement with Ashok Leyland and Tata Motors, but recently the government discontinued vehicle manufacture at the factory.

The reduced in-house production, Srikumar said, would lead to poor plant and machinery utilisation and increase the unit cost of in-house manufacturing and cost of the vehicle as a whole. “Our main point is for a sufficient workload. Why is the government keen on finishing off the ordnance factories, which have delivered thus far? The fate of the assault rifles developed by Rifle Factory Ishapore and Ordnance Factory Tiruchirapalli is hanging by a thread as the Army has not taken any decision on their procurement,” he said. Srikumar said another “excellent Made in India weapon, the 5.56×30 mm Joint Venture Protective Carbine (also known as a modern submachine carbine)” designed by the Armament Research and Development Establishment in Pune and manufactured by Ordnance Factory Tiruchirapalli as a replacement for the antique 9 mm carbine has been on Army trials for the last four years with not even the first version being taken into service despite the Defence Research and Development Organisation’s claim that it met all the services trial parameters.

The Army had considerably reduced the workload of the ammunition and explosive group of factories. “The government has decided to purchase Rs.15,000 crore worth of ammunition from the private sector. We requested the Army to place the indent for ammunition and explosives, including pyro ammunition, with the ordnance factories. It did not happen,” he said. Because of the outsourcing of non-core items to the private sector, the MSMEs involved their production had had to close shop. The OFB had been compelled to cut down orders placed with various textile mills. The MSMEs supplied to the OFB directly rather than to the Army. The Confederation of MSMEs said that owing to the cancellation of their orders by the OFB six lakh workers were going to be rendered jobless.

Neeraj Mehra, an office-bearer of the Federation of MSME Vendors of Defence and Aerospace, told Frontline that they were still “fighting with the government to restore the orders”. The OFB had not been given any instructions, he said, to continue with the production schedule. “The crisis has worsened. Our stocks are not getting liquidated. Production has been put on hold. Our working capital is also stuck. We have paid GST [Goods and Services Tax] on the raw materials. These are custom-made products, not like off-the-shelf items like pens. They have to be sold to the Government of India,” Mehra said. The OFB’s production target had been reduced from Rs.15,000 crore to Rs.12,000 crore. “Member vendors are exploring other avenues now. But what we have produced for the ordnance factories and the OFB will have to be bought by them only; it is part of the Indian Contract Act. Hundreds of crores worth of stock is lying with the vendors. The OFB and individual ordnance factories are meeting vendors, but as there is no communication from the government or the Army on procuring the items we have produced, the OFB is helpless,” he said.

According to the website of the OFB: “[T]he prime customers of Indian Ordnance Factories are the Indian Armed Forces. Apart from supplying armaments to the Armed Forces, Ordnance Factories also meet the requirement of other customers, viz. Central Paramilitary Forces and State Police Forces in respect of Arms, Ammunition, Clothings, Bullet Proof Vehicles and Mine Protected Vehicles etc. increase in volume of Export, as an extension to its functioning remains an important objective of Ordnance Factories.” The OFB and its 41 ordnance factories were designed to serve the needs of the Indian Army. The logic of starving the MSMEs and the OFB by reducing their workload in order to facilitate private operators does not serve the lofty objectives of Make in India.