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India Opens Ordnance Factory Overhaul to Overseas Firms

Feb. 24, 2014 - 12:17PM   |  
A line of the Indian Army version of Min
Major Upgrades: Indian Army mine-protected vehicles are on display at the ordnance factory in Medak District, India. All of India's state-owned ordnance factories will be modernized under a five-year plan. (AFP/Getty Images)
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NEW DELHI — Amid India’s quest to modernize its deteriorating state-owned ordnance factories, it is seeking help from overseas companies — a move that’s putting domestic defense companies on notice.

The modernization program, which was approved last month and slated to begin in April, will involve all of India’s 41 state-owned ordnance factories and will cost more than US $2.5 billion, according to a source in the Indian Defence Ministry.

The five-year modernization program is expected to create stiff competition with domestic private-sector companies, forcing them to review their strategy in tapping a weapons market valued at more than $150 billion in the next 10 years, analysts said.

So far, BAE Systems has offered to modernize the ordnance factories, which are administered by the state-owned Ordnance Factory Board (OFB). A source in the Defence Ministry said BAE presented its modernization plan to senior OFB officials last month.

A BAE executive here said themodernization plan will help increase productivity and reduce manufacturing waste. He gave no details.

An OFB official said that while the organization is seeking help from overseas firms, no formal agreement has been reached so far. The official said the OFB is evaluating BAE’s offer.

The five-year plan to modernize OFB factories includes the replacement of old machinery at a cost of more than $1.5 billion, and another $1.5 billion will be spent on modern production gear.

More than 50 percent of India’s state-owned ordnance factories need replacements of either the plants or their machinery, and nearly 16 of them were operational during World War II, providing the allies with arms and ammunition.

An Indian Army official said the majority of the products manufactured by OFB are second generation and often substandard.

The ordnance factories produce the Russian-designed T-72, T-90 and homemade Arjun tanks, along with armored personnel carriers, mine-protected and bulletproof vehicles, artillery, naval guns, night vision devices, fire control systems for armored vehicles, small arms and many varieties of ammunition.

The factories mainly produce non-high-tech arms and equipment based on technology and drawings provided by India’s Defence Research and Development Organisation (DRDO), an OFB official said.

“In such an environment, the ordnance factories had no appreciable role in the pre- and postproduction functions,” the OFB official added, saying the factories would benefit from greater participation in preproduction, including the design and development of weapons.

Besides DRDO, Russia continues to be the largest supplier of defense technology to the factories, but new sources need to be sought, the official added.

The OFB has a spotty history when it comes to striking deals with overseas firms.

In 2012, OFB signed a joint venture with Rosoboronexport and Splav SPA of Russia to manufacture five types of Smerch munitions in a new facility inside an existing factory, but the facility has yet to be built.

Three years earlier, Israel Military Industries (IMI) signed a $240 million agreement with India to build five artillery munitions factories for OFB. However, IMI was later blacklisted for allegedly using bribes to win the contract with OFB.

The MoD has been critical of OFB delays. The MoD source said OFB was late in delivering jackets, boots and parachutes worth more than $200 million, and the Army had to resort to imports.

OFB, with more than 100,000 employees, has annual sales of only $2 billion.

Last year, an inquiry found that faulty OFB-supplied ammunition led to the bursting of the barrel of a 155mm/45-caliber gun being upgraded by one of the factories, the MoD source said.

The aggressive plan to modernize OFB factories comes at a time when India’s private defense companies are putting up facilities to tap the market.

“The private-sector defense companies will have to redraw their plan if OFB factories modernize with the help of major overseas defense companies, as these factories could pose a major competition to the emerging private-sector defense companies,” said retired Maj. Gen. Mahindra Singh.

However, a senior executive with privately owned Larsen & Toubro said private defense companies have invested more than $6 billion in setting up production facilities. He further noted that OFB’s modernization will not limit private-sector defense orders, and there is enough room for everyone to win a slice of the defense market.


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