Why in News:

• The Union Cabinet approved a plan to corporatize the Ordnance Factory Board into fully government owned corporate entities on the lines of Defence Public Sector Undertakings (DPSU).
  • Corporatization refers to the restructuring or transformation of a state-owned asset or organization into a corporation.

Ordnance Factory Board

• It is an umbrella body for the ordnance factories and related institutions, and is currently a subordinate office of the Ministry of Defence (MoD).
• The first Indian ordnance factory was set up in the year 1712 by the Dutch Company as a GunPowder Factory, West Bengal.
• Weapon, ammunition and supplies for armed forces, paramilitary and police forces comes from the OFB-run factories.
• OFB focuses on production of civilian and military-grade arms and ammunition, explosives, propellants and chemicals for missile systems, military vehicles, armoured vehicles, optical devices, parachutes, support equipment, troop clothing and general store items.

Why will corporatization help?

• This move would allow these companies autonomy and help improve accountability and efficiency
• The restructuring can transform the ordnance factories into productive and profitable assets, deepening specialisation in the product range, enhancing competitiveness, improving quality and achieving cost efficiency.
• The above structure would also help in overcoming various shortcomings in the existing system of the OFB by eliminating inefficient supply chains and provide these companies incentive to become competitive and explore new opportunities in the market, including exports.
• The Atmanirbhar Bharat initiative, also calls for the Corporatisation of OFB for: ‘improving autonomy, accountability and efficiency in ordnance suppliers.

Comptroller and Auditor General (CAG) report on the OFB’s

• Overhead expenses constitute 33% of the overall allotted budget.
• High supervision costs and indirect labour costs.
• Delayed and incomplete production– OFB’s achieve production targets for only 49% of the items.
• High inventory cost– More than half the inventory (52%) was store-in-hand, procured for manufacture but not used within the year by the factories.

 Reference:

1. https://www.thehindu.com/news/national/ofb-corporatisation-gets-cabinet-approval/article34833105.ece