May 17, 2007 (FIDSNS)

A two-day conference of the General Managers of Ordnance Factories will be held New Delhi on Friday, May, 18, 2007.

Indian Ordnance Factories Organisation, a conglomerate of 39 Ordnance Factories, set up to produce land based military hardware exclusively for Defence use started its journey in 1802 when the British established the first factory on the bank of Hooghly near Kolkata to repair wooden gun carriages. The expansion of the organization thereafter was need based and concentrated in the years immediately after war for manufacture of products whose need was felt during the war. Since Indian Industry was at the infant stage when most of the Ordnance Factories came up, in-house manufacture of military products was planned from virgin metal. This fully integrative production approach was subsequently dispensed with when Indian Industry matured and today creation of capacity in Ordnance Factories is restricted either in strategic area or for the inputs that Indian trade cannot meet qualitative and quantitative requirement. The share of Indian trade now has risen to 46% of turnover.

Indigenous content in Ordnance factories products is about 98% for established items. Even when new items under productionisation are counted, import content varies at best between 5 to 6%. This high order of indigenisation helped Ordnance Factories to exploit surge capacity at a very short notice to meet increased requirement during war despite sanction imposed by overseas states.

Today Ordnance Factories manufacture wide range of products starting from troop comfort items including small arms, ammunitions, weapons artillery guns transport and armoured vehicle, optical equipments required by Artillery Infantry Air Defence and Mechanised Forces. The organization is around the first 20 of Defence Industry contractors of the world with turnover of around 1.5 billion US $ per annum.

Production capacity in Ordnance Factories was created to meet war time requirement. Exploitation of installed capacity in full always poses a challenge requirement, during peace time being less. Notwithstanding the limitation of product centric manufacturing capacity, constant endeavour made to assess and develop products for non Defence sector has led to develop market for almost 20% of turnover in other than Defence sector.

Though Ordnance Factories supply to Defence Forces most of the products (except products manufactured in unorganized sector) at a price less than market price, Ordnance Factories do not have any scope to make profit from Defence sector as supply to Defence sector is on cost as per policy. However the price for products meant for non Defence sector is market driven. As such Ordnance Factories earn profit from supply to civil sector including export and pass on the benefit to Defence sector by calibrating price.

Modernisation of infrastructure is another thrust area pursued continuously to upgrade technology to undertake manufacture of futuristic products in minimum response time. The organization has invested Rs. 2505 Cr. during IXth and Xth Plan for procurement of plant and machinery with upgraded technology. The modernization plan is regularly fine tuned matching with change in product mix brought about by Defence Forces at the time of induction of new products and funded through internal resources without taking any budgetary support from Govt. of India.

Improved productivity, modernization and optimum capacity utilization has resulted in generation of surplus/profit. Since Ordnance Factories cannot retain surplus/profit, the profit earned from issues to non-Defence sector is passed on to Defence sector by calibrating price. Consequently average weighted price of products supplied to Indian Army has increased by 8.18% between 2000-01 and 2006-07 compared to 28% increase in MPI during the same period.

Though India imported military hardware and software worth 10.5 billion US $ in last 3 years, hardly any product falling in core activity area of Ordnance Factories figures in the import basket. However, the organization is aware of the requirement of Defence Forces to acquire smart weapons and ammunitions to manage modern warfare. The technology for the product manufactured in Ordnance Factories used to flow either from DRDO, the designated Defence R&D organization or from overseas Defence industries chosen by the user. The R&D infrastructure in Ordnance Factories was limited to production technology leading to process improvement. Since Defence business management doctrine has undergone change and today Ordnance Factories have to secure order even from Defence Forces through competition, development of new products and upgrades has become a matter of paramount importance for sustained growth. Graduation from present miniscule scope on R&D to product development is an arduous task and requires specialists as well as infrastructure. Ordnance Factories are aware that this cannot be accomplished over night and delay in development will affect growth. A two-fold approach has therefore been taken, viz, develop through (i) in-house R&D wherever possible and build infrastructure for future and (ii) collaboration with advanced technology provider. This has started yielding result. During last 3 years Ordnance Factories have supplied products worth Rs. 814 Cr. developed through in-house R&D. Further supply of products developed through collaboration is likely to commence in 2007-08.

The above efforts are the fruits of the strategy adopted in last GM Conference. These now need further tuning based on experience gained and change in Defence acquisition process. Moreover today Ordnance Factories are expected to function like a commercial entity and yet to remain committed to meet planned objective of Govt., like meeting requirement of Defence Forces without considering whether production of such items is economically viable, social obligation to develop backward areas (as Ordnance Factories are mostly set up in backward/remote areas). These issues are slated to be deliberated in ensuing GM Conference to evolve a strategy for managing changes.