Defence Ministry to stop investing in ordnance factories, DPSUs

Nayanima Basu New Delhi | Updated on January 29, 2018

A Stallion military truck in Vehicle Factory Jabalpur

Wants private players to introduce products, create additional capacity


In what could spell the death-knell for Ordnance Factory Boards (OFBs) and Defence Public Sector Undertakings (DPSUs), the Ministry of Defence has decided that it will not make any further investments in these establishments, while product introduction and creation of additional capacity will have to be undertaken by the private sector.

In an internal policy move, the government has also decided that core military hardware, such as battle tanks, combat vehicles and specialised military trucks, will remain in the domain of the government-owned enterprises. Modernisation, upgrades, repowering, product launches and improvement in operational efficiencies are to be carried out with the help of private players with proven track records in a particular field, Defence Ministry sources told BusinessLine.

The decision is believed to have been taken after Defence Minister Nirmala Sitharaman carried out a major review of the ordnance factories last December, following a move by the Prime Minister’s Office asking the ordnance factories to present reports of their achievements since 2013.

The role of OFBs and DPSUs has traditionally been limited to production, while R&D has been carried out by DRDO. At present, there are 41 factories and 8 DPSUs under OFB that produce a wide range of products for all three services.

Ordnance factories became a priority in India only after the 1962 War, when a need was felt to become self-sufficient in the manufacture of military hardware, including vehicles. One such example is the Vehicle Factory Jabalpur, which was set up in 1969 to meet the transportation needs of the Indian armed forces.

Private players react

Private sector players, however, do not seem very enthused by the government’s policy as they believe it will be a waste of national resources if the same model is replicated with identical creation of infrastructure by the private sector.

“This will also mean more investments by the private sector, which is already reeling under pressure due to lack of orders. There are more innovative ways to revive the OFBs and DPSUs. After all, our country has fought wars with product support primarily from these PSUs,” said a top executive from an Indian defence conglomerate, who refused to be identified.

The executive also said that it will not be beneficial in the long-run to hive off the state-run capacities.

One of the reasons why the private sector has not been able to come up in a big way is because the defence market is neither assured nor is there any certainty that the government will come out with big-ticket orders.

Moreover, the cumulative foreign direct investment (FDI) in the defence sector is just 2 per cent of the total foreign equity received in the country.

Published on January 29, 2018

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