Trends in Defence Production: Case of Ordnance Factories

-Baidya Bikash Basu, Researcher, IDSA

 

Introduction

"What is the equation of defence? In what lies the strength of a people for defence? Well, one thinks immediately about defence forces--army, navy, air force. Perfectly right. They are the spear points of defence. They have to bear the brunt of any attack. How do they exist? What are they based on? The more technical armies, navies and air forces get, the more important becomes the industrial and technological base of the country. You may import a machine or an aircraft or some other highly technical weapon and you may even teach somebody to use it, but that is a very superficial type of defence because you have not got the technological background for it. If spare parts go wrong, your whole machine is useless. If somebody, from whom you bought it, refuses to supply a part of it, it becomes useless so that in spite of your independence, you become dependent on others and very greatly so...Therefore, apart from the army, navy and so on, you have to have an industrial and technological background in the country."

"The equation of defence is your defence forces plus your industrial and technological background plus thirdly the economy of the country and fourthly the spirit of the people."1

-- Jawaharlal Nehru

The above paragraphs manifest themselves. They show the special concern by the first Prime Minister of independent India, Pandit Jawaharlal Nehru, towards the defence industrial and technological base. This explains the requirement to expand the defence industrial and technological base having consequences for the macro-economy itself. Indeed, final political decisions to operate the defence industries under state management and control were based on the ideological understanding and the relative efficiency of the public sector compared to the private sector. The Nehru-Mahalanobis philosophy and strategy of self-reliance largely determined the shape and scope of Indian defence production. The Planning Memorandum (PM) of 1945 and the Industrial Policy Resolution (IDR) of 1948 and 1956 laid the basis for the expansion of Ordnance Factories and Defence Public Sector Undertakings specialising in designing, developing and producing weapon systems acquired by the armed forces. The justification in placing munitions, aircraft and shipbuilding industries in the public sector under the control of the central government arose because of the external security environment and the Congress government's oft-repeated policy of establishing a socialist pattern of society.2

Past and Present

In 1801, at Cossipore near Calcutta, the first Ordnance Factory (OF) in India--a gun and shell factory--was built by the East India Company. Soon came seven additional factories in the aftermath of the 1857 Mutiny:3

(i) Harness and Saddlery, Kanpur 1864

(ii) Ammunition Factory, Kirkee 1889 (Ammunition)

(iii) Cordite Factory, Arvankadu 1890 (Propellants)

(iv) Metal and Steel Factory, Ishapore 1900 (Steel)

(v) Rifle Factory, Ishapore 1904 (Rifles)

(vi) Gun Carriage Factory 1904 (Gun Carriage)

(vii) Clothing Factory 1914

Prior to World War II, there were only 8 OFs. By 1947, this figure had risen to 16. For 10 years after independence, no new OFs were added and their production continued in the sphere of low technology items such as small arms, rifles, guns and ammunition, mines and other explosives. The appointment of V.K. Krishna Menon as Defence Minister had a positive impact. The OFs were modernised and expanded. Since then, 23 factories have been added.4 At present, there are 39 OFs, spread all over the country. There are 10 factories each in Maharashtra and Uttar Pradesh; 6 factories each in Madhya Pradesh and Tamil Nadu, 4 factories in West Bengal, and one factory each in Andhra Pradesh, Orissa and the Union Territory of Chandigarh.5

There is also an Ordnance Factory Board (OFB), the largest departmental undertaking in the country, with headquarters in Calcutta. The Director General Ordnance Factories (DGOF) who heads the organisation is the ex-officio Chairman of the Board. The Board has nine members each of the rank of Additional DGOF. The Board has made the following distribution of the OFs, based on the type of products and technologies employed by the OFs.6

1. Ammunition and Explosives (A&E) 10 factories

2. Weapons, Vehicles and Equipment (WV&E) 10 factories

3. Materials and Components (M&C) 10 factories

4. Armoured Vehicles (AV) 4 factories

5. Ordnance Equipment (OE) 5 factories7

A list of 39 OFs8 is given below:

1. Ammunition and Explosives (A&E): Factories under A&E manufacture ammunition of various calibre and explosives.

(i) OF, Bolangir, Orissa

(ii) OF, Khamaria, Jabalpur, MP

(iii) OF, Itarsi, MP

(iv) OF, Dehu Road, Maharashtra

(v) OF, Varangaon, Maharashtra

(vi) OF, Chanda, Maharashtra

(vii) OF, Bhandara, Maharashtra

(viii) OF, Khadki, Maharashtra

(ix) High Explosives Factory, Maharashtra

(x) Cordite Factory, Aruvankadu, Tamil Nadu

2. Weapons, Vehicles and Equipment (WV&E): Factories under WV&E manufacture various types of ammunition-hardware, vehicles (from the Jonga to the 7.5 tonne) and other important equipment required by the OFs and armed forces.

(i) Gun Carriage Factory, Jabalpur, MP

(ii) Vehicle Factory, Jabalpur, MP

(iii) Grey Iron Foundry, Jabalpur, MP

(iv) OF, Tiruchirapalli, Tamil Nadu

(v) OF, Kanpur, UP

(vi) Field Gun Factory, Kanpur, UP

(vii) Small Arms Factory, Kanpur, UP

(viii) Gun & Shell Factory, Cossipore, West Bengal

(ix) OF, Dum Dum, West Bengal

(x) Rifle Factory, Ishapore, West Bengal

3. Materials & Component (M&C): Factories under M&C mostly manufacture equipment required by other Ordnance Factories.

(i) Ordnance Cable Factory, Chandigarh

(ii) OF, Katni, MP

(iii) OF, Ambarnath, Maharashtra

(iv) Machine Tool Prototype Factory, Ambernath, Maharashtra

(v) OF, Bhusawal, Maharashtra

(vi) OF, Ambajhari, Maharashtra

(vii) Heavy Alloys Penetrator Project, Tiruchirapalli, Tamil Nadu

(viii) OF, Muradnagar, UP

(ix) OF, Dehra Dun, UP

(x) Metal & Steel Factory, Ishapore, West Bengal

4. Armoured Vehicles (AV): Factories under AV manufacture heavy vehicles (tanks, APCs, ICVs) required by the armed forces.

(i) OF Project, Medak, AP

(ii) Heavy Vehicles Factory, Avadi, Tamil Nadu

(iii) Engine Factory, Avadi, Tamil Nadu

(iv) Opto-Electronic Factory, Dehra Dun, UP

5. Ordnance Equipment Factories (OEF): Factories under OEF manufacture clothing and leather items required by the armed forces.

(i) Ordnance Clothing Factory, Avadi, Tamil Nadu

(ii) Ordnance Equipment Factory, Kanpur, UP

(iii) Ordnance Parachute Factory, Kanpur, UP

(iv) Ordnance Equipment Factory, Hazratpur, UP

(v) Ordnance Clothing Factory, Shahjahanpur, UP

The OFs occupy a unique and central place in the operational defence preparedness of India. They manufacture more than 1,500 items of light arms, ammunition, guns and explosives, equipment and components, vehicles and clothing items, not only for the armed forces, but also for the para-military and police forces. According to Stockholm International Peace Research Institute (SIPRI) estimates (in terms of sales), the OFs rank 61st among the 100 largest arms producing companies in the world,9 employing a manpower of 1.64 lakh.10 Since 1962, as many as 19 new factories were set up at green-field sites.11 A telling indicator for the OFs has been their production of sophisticated weapons and equipment systems using advanced technology assisted by the Defence Research and Development Organisation (DRDO). These include the modern Main Battlefield Tanks (MBT); Infantry Combat Vehicles (ICV); Armoured Personnel Carriers (APC); field and self-propelled guns; non-detectable anti-tank mines with double action fuse, various small arms, anti-tank and anti-aircraft guns, ammunition for weapons, bombs, grenades, rocket projectiles, optical and opto-electronic instruments, night vision equipment, field communication cables, summer and winter (inclement weather) uniforms, tentages, parachutes, miscellaneous leather goods, light floating bridges, general stores (clothing, leather items, drums, barrels etc.) and civil blasting explosives. To attain the twin objectives, import substitution and growth, the OFs have achieved self-reliance in meeting the lethal and non-lethal requirements of the armed forces.

The Heavy Vehicles Factory (HVF) at Avadi in the 1960s began production of tanks; under licence from Vickers-Armstrong, the first of its kind was the Vijayanta which was followed by the manufacture of the ex-Soviet T-72 M1 Ajeya MBTs, the first of which rolled out in January 1988.12 The more modern and latest version is yet to roll out, the MBT Arjun, which was demonstrated in January 1996. The MBT represents a major step in the weapons indigenisation. Large-scale production of the tank is expected and has been approved at HVF, Avadi.

The OFs, in general, are engaged in designing and developing low and medium technology weapons and equipment systems using indigenous and foreign technology. The products include the Indian Field Gun MK II, the latest version of the 5.56 mm calibre INSAS assault rifle, Light Machine Gun (LMG), carbine and related ammunition. In-house R&D projects have successfully developed the DTD-5124 aluminium alloy as an import substitute.13 The changing technology and increased military requirements have forced the OFs to provide quality products and services to military customers. Indigenous development of the anti-sinking device for the 81 mm mortar in desert and icy terrain, casting of RDX: TNT pellet in bar mine, developing high speed low drag bomb are the in-house R&D in weaponry by the OFs.14

The OFs are also manufacturing and supplying hardware to civilian markets like railways and public sector undertakings. The Metal and Steel Factory, Ishapore, has developed the Cold Rolling Mill (CRM) required by Bokaro Steel Plant which was earlier being imported. New products like axles, armature-shafts, components for diesel locos are always in demand by the Diesel Locomotive Workshop (DLW), Varanasi and Diesel Component Workshop (DCW), Patiala. Also, casting and various machine components are being supplied by the OFs to Hindustan Machine Tools (HMT), Bharat Earth Movers Ltd. (BEML), and Bharat Heavy Electricals Ltd (BHEL). The OFs have diversified their production to include sporting weapons ammunition-hardware, chemical filling, power generation equipment and clothing. In 1994, the clothing unit of the HVF, Avadi, stitched shirts for the Van Heusen brand.15 The Vehicle Factory, Jabalpur, has developed a few diesel Jongas with Hino engine--a state-of-the-art engine manufactured by Ashok Leyland under licence from Hino, Japan. This OF plans to target the Jongas particularly at the rich farmers, the urban users of utility passenger vehicles and rural and urban users of heavy-duty high horse power passenger vehicles and taxi-owners.16 The OF, Ambarnath, has manufactured "band coat machines" for use in the currency note press at Nasik.17

It is worth noting here that economic constraints have led to reductions in budget allocations for the armed forces. To remain operationally effective, the OFs' production has been diversified. The OFs have spare capacities to offer such as metal making and shaping, metal joining, metal forming, metal finishing--both ferrous and non-ferrous. The technological advancement in the civilian sector of the economy has implicitly set its own standards for technological attainment by the OFs in manufacturing and supplying quality products to the civilian sector. Nearly 20 per cent of production of the OFs is for the civilian customers.18 The fact is that the value of issues for civil trade, including paramilitary forces, has been increasing. From Rs. 365 crore in 1994-95, it has increased to Rs. 424 crore in 1995-96.19 Depending upon the "make or buy" decisions, the OFs are purchasing many components and materials from the civil sector giving better scope for civil sector participation in defence production. Diversification of range will be strengthened by the five Regional Marketing Centres of the OFs located in Calcutta, New Delhi, Kanpur, Pune, and Chennai, each one being headed by a Regional Director.20

The turnover of OFs has been increasing at rates which attract attention. It was higher than the national average during 1992-93 and 1993-94, thus overcoming the relative decline which had set in their performance during 1989-91. The total production for sales in 1991-92 was Rs. 1,577 crore, for 1992-93 it was Rs. 1,782 crore, representing an increase of 13 per cent over 1991-92, and for 1993-94, it was Rs. 1,988 crore, representing an increase of 11.6 per cent over 1992-93.21 In 1994-95, it was Rs. 2,159 crore (approx) which touched Rs. 2,331 crore (provisional) in 1995-96, registering an average increase of about 12 per cent from 1991-92 to 1995-96.22 The value of issues to defence indentors during 1993-94 was Rs. 1,569 crore, in 1994-95, it was Rs. 1,614 crore and in 1995-96, it has touched Rs. 1,907 crore, which is an 18 per cent increase over the previous year, i.e., 1994-95.23

On the export front, the OFs are attempting to render their products in the international market. Since 1989, the government has been encouraging export of defence equipment, which gave a great boost to the OFs' production and a chance to compete effectively in the international market. In other words, to expand by utilising the resources and to acquire more economic resources to tide over the economic difficulties. Recently, the Rifle Factory, Ishapore, near Calcutta, has bagged large export orders worth nearly Rs. 15 crore for a range of small weapons from Turkey, Nepal and a few neighbouring South Asian Association for Regional Cooperation (SAARC) member nations.24

An outstanding feature of the OFs is the ISO 9000 certification--the benchmark for international quality standard for products seeking international markets. Out of 39 OFs, 32 have secured certification under ISO 9002.25

Ordnance Factories Budgeting

Till 1987, the OFs' budget was an integral part of the armed forces budget. It was a part of allocation made to the Army and hence, equipment manufactured was issued free to the Army and payment issues were made to the Navy and the Air Force.26 The OFs' budget was financed out of the Army budget under a minor head like R&D and DGQA.

The OFs always had the detailed costing system using material warrant for drawing materials, comparison with standard estimates and taking corrective measures where there were significant deviations. A quarterly budgeting was done for the control of expenditure on overheads. Till the Sixties, these mechanisms were operational but after the Sixties, the control of costs was not up to the standard by these costing mechanisms.

The mid-Eighties saw the concept of "market" taking shape for OFs where the motivational factor plus productivity increase by utilising the optimum capacity was stressed. To enhance the accountability of the OFs by using methods of genuine and justifiable financial management, it was decided that the OFs' budget should be separated from the Army budget.

April 1, 1987, saw the first OF budget separated from the Army budget.27 The engineering and manufacturing capabilities of the OFs are, without doubt, of high quality, meeting the complex and rigid engineering specifications demanded by the armed forces and also by the para-military and police forces.

The effects of necessary changes were clearly noticeable: issues to the Army which were "free issues" are now payment issues.28 To sustain high quality production activity, allocations have been made to the Ordnance Factories Board under various expenditure heads. Also separate allocations are placed under the stores head of the armed forces to cater for the supplies to be made by the OFs in a financial year.29 In this context, the concept of "net budget" for the OFs budget was introduced. Here "net" revenue budget for the OFs means the difference between expected total expenditure and total revenue receipt. Net revenue budget clearly shows the net cash flow of the organisation which includes book adjustments between the various departments in a financial year. A better and stronger management and accountability in targeting the value of issues and expenditure was noticeable through the introduction of this net revenue budget concept.

Pricing mechanism and market system has established a customer- producer relationship. To satisfy the customers was the new attitude which generated more freedom for the OFB in deciding the material requirement for each of the products for production in a financial year, with maximum utilisation of the materials, and stock quantity. Thus, the concept of material management and inventory control was put to use by the OFs. The OFB prepares the purchase budget too. The factories project their fund requirements which is reflected in the stores budget of the OFB.30 Each factory has the system of net budgeting covering all items of expenditure and receipt. This was done to ensure responsibility and accountability. Of interest is the Inter-Factory Demand (IFD) receipt budget which is to be done by each of the factories while working out their net budget target, in addition to the production, cash budget for meeting production cost.31 The inter-relationships and capabilities between the OF comprise the benchmark for the IFD. The net budget is a significant one as it indicates the extent to which the factories can recover their expenditure from the issues to the customers, i.e., the armed forces, sister factories and civilian sector.

Interestingly enough, the net budget concept has simply revolutionised the entire process of financial decision-making within the OFB, simultaneously leading to zero-based budgeting in manpower planning within the OFs. Over the years, there has been a reduction in manpower in the OFs.32

The Revenue Expenditure (RE) of OFs in the Budget Estimates for 1996-97 has been at Rs. 680.78 crore which is the same as that of the Revised Estimates of 1995-96.33

In order to keep the OFs' production capacity at its optimum level, the stores budget and issue budget of the same have been increased to a minimum of Rs. 1,550 crore and Rs. 2,300 crore respectively at the 1995-96 RE level. This was raised because in 1995-96, the total value of sales to the defence forces sector has been at the level of Rs. 2,330 crore. According to the Ministry of Defence, an amount of Rs. 2,540 crore is necessary to manage the production level of the items (value of issues--as per recent prices). The total value of issues in OFs for the year 1996-97 can be above Rs. 2,830 crore, as the Army has already placed orders for priority items of ammunition and other equipment which is Rs. 300 crore more than the previous year.34

Conclusion

However, despite an impressive long-range planning of indigenisation, the capacity utilisation of the OFs has dropped from 100 percent to 68 percent in the six-year period, i.e., 1988-89 to 1993-94.35 The OFs have no substitute in the area of defence production. The private sector industries still do not have the necessary infrastructure to take up the challenge of manufacturing stable technical defence equipment. The most essential step is to seek the operational capability of the equipment so that our armed forces can accomplish in full. To obtain good value for money, a range of new equipment plus upgrading the existing ones can be considered. With the per unit cost of production increasing, proper cost estimates with respect to capacity utilisation and raw material costs need to be derived. All this will lead to cost efficiency and, in fact, will help the OFs to cope in the competitive environment.

An important dimension of exploring the possibilities in the context of boosting civilian production will be to look for markets as the products manufactured by the OFs are new. Proper market survey and better marketing strategy can motivate the customer to buy the product. Product planning to product selling requires a professional management oriented innovative human talent to ensure quality control at every stage in order to have an edge in the market. The Jonga manufactured by the Vehicle Factory, Jabalpur, is yet to capture the Indian market and attract the attention of the Indian customers in the four wheelers LMV category. The Jonga lacks the sleek body shape and corporate look of other LMVs like the Mahindra Armada, Maruti Gypsy, Tata Sumo. The real demand can be stimulated by advertising in domestic and international media and enabling people to get better products. The technical features like fuel efficiency, road holding, braking, catalytic converters, engine emissions, total safety will add the perfect synthesis of driving comfort, pleasure and styling. No doubt, customers expect better products and better after sales service.

The quality of human resource in the organisation ultimately spells out the difference in the market. Skilled labour plus trained manpower can improve productivity by concentrating on quality products. Currently, no recruitment is taking place in the OFs and there is no proper manpower management. Any financial constraints should not come in the way in making the recruitment in the OFs attractive. An attractive salary package together with the welfare measures will certainly motivate skilled and trained manpower to manufacture best quality defence equipment and civilian products. Hopefully, it is expected that the Fifth Pay Commission will take note of, and accommodate, the genuine demands of the employees in the OFs. In addition, steps must be initiated to constantly evaluate the performance of employees. Further, regular training programmes should be conducted to upgrade the technical skills of the staff to keep them abreast of the latest technical advancements.

The efforts by the OFs to modernise and upgrade their technical capabilities plus product diversification programmes are designed to take immediate advantage of the consumer demands focussing increasingly on defence production. The challenge that the OFs will face in future is to manage the increasing product variety while maintaining costs and quality and shortening the response time i.e., the need for a product and its delivery.

 

NOTES

1. Speech during debate on Demands of the Ministry of Defence, Lok Sabha, March 21, 1956, Jawaharlal Nehru's Speeches, 1953-1957 (New Delhi: Publication Division, GOI), pp. 39-40.

2. Lorne J. Kavic, India's Quest for Security Defence Policies, 1957-65 (Berkeley, California: University of California Press, 1967), p. 126. Also see 2 in Kavic, p. 126, and Jagdish N. Bhagwati and Padma Desai, Indian Planning for Industrialisation (London: Oxford University Press, 1970), pp. 140-142 and Raju G.C. Thomas, The Defence of India: A Budgetary Perspective of the Strategy and Politics (Delhi: MacMillan, 1978), p. 117.

3. Maj. Gen. Pratap Narain (Retd), Indian Arms Bazaar, (Delhi: Shipra Publications, 1994), p. 20.

4. Ministry of Defence, Government of India, Annual Report, 1994-95, p. 26.

5. Ministry of Defence, Government of India, Annual Report, 1995-96, p. 40.

6. Ibid.

7. Ibid.

8. Interview, New Delhi, November 28, 1996, Interview, New Delhi, November 29, 1996.

9. SIPRI Yearbook 1996, Armaments, Disarmament and International Security, (Sweden/Oxford: SIPRI, Oxford University Press, 1996), p. 460.

10. Ministry of Defence, Government of India, Annual Report, 1995-96, p. 40.

11. Ministry of Defence, Government of India, Annual Report, 1994-95, p. 26.

12. Ministry of Defence, Government of India, Annual Report, 1987-88, p. 30.

13. Ministry of Defence, Government of India, Annual Report, 1993-94, p. 24.

14. Ministry of Defence, Government of India, Annual Report, 1995-96, p. 41.

15. Economic Times, April 2, 1995, p. 7.

16. Brand Equity '95 (NOIDA, UP: Bennett, Coleman & Co. Ltd., 1995), p. 102.

17. Times of India, June 13, 1994, p. 15.

18. Ministry of Defence, Government of India, Annual Report, 1995-96, p. 42.

19. Ibid.

20. Interview, New Delhi, November 28, 1996.

21. Ministry of Defence, Government of India, Annual Report, 1994-95, p. 27.

22. Ministry of Defence, Government of India, Annual Report, 1995-96, p. 41.

23. Ibid.

24. Hindustan Times, March 4, 1996, p. 15.

25. Ministry of Defence, Government of India, Annual Report, 1995-96, p. 41, Interview, New Delhi, November 29, 1996.

26. Amiya Kumar Ghosh, India's Defence Budget and Expenditure Management in a Wider Context (New Delhi: Lancer Publishers Pvt. Ltd., 1996), p. 219.

27. Ibid., p. 220.

28. Ibid., p. 221.

29. Ibid., p. 221.

30. Ibid., p. 226.

31. Ibid., p. 226.

32. Ibid., p. 227.

33. First Report of the Standing Committee on Defence, 1996-97 (11th Lok Sabha), Ministry of Defence, Demands for Grants, (New Delhi: Lok Sabha Secretariat, August 1996), p. 17.

34. Ibid., p. 17.

35. SIPRI Yearbook, 1996, Armaments and Disarmament and International Security (Sweden/Oxford: SIPRI, Oxford University Press, 1996), p. 446. Also see f.n. 115, p. 446.