Context: Recently, the Union Cabinet has approved the plan to corporatise the Ordinance Factory Board (OFB).
Key Points

• The decision was taken by the Cabinet Committee on Security in July 2020, when it approved to transform it into one or more government-owned corporate entities to improve its autonomy, accountability and efficiency in ordnance supplies.
• In September, the government formed an Empowered Group of Ministers (EGoM) to oversee the process.

41 factories across the country will be dissolved into seven new Defence Public Sector Undertakings (DPSU). The newly created entities will be 100% owned by the government.

• These entities will be responsible for different verticals of the products such as the Ammunition and Explosives group will be engaged in production of ammunition while a Vehicles group will engage in production of defence mobility and combat vehicles.

The OFB, the establishment of which was accepted by the British in 1775, will cease to exist.

• The  factories would be subsumed  based on the type of manufacturing.
• The ammunition and explosives group would be mainly engaged in producing ammunition of various calibre and explosives, with huge potential to grow exponentially, not only by way of ‘Make in India’ but also by ‘Making for the World’.

Similarly, the vehicles group would mainly engage in producing defence mobility and combat vehicles such as tanks, trawls, infantry and mine protected vehicles.

• The weapons and equipment group would be mainly engaged in production of small arms, medium and large calibre guns and other weapon systems and is expected to increase its share in the domestic market through meeting the demand as well as product diversification.

The troop comfort items group, the ancillary group, the opto-electronics group and the parachute group constituted the entire structure, once implemented.

• All employees of the OFB (Group A, B and C) belonging to the production units would be transferred to the corporate entities on deemed deputation initially for a period of two years without altering their service conditions as Central government employees.
• The pension liabilities of the retirees and existing employees would continue to be borne by the government.
• EGoM would decide upon the matters related to implementation and review any issues arising from time to time.

Aims and Objectives 

• It is a major decision in terms of national security and also makes the country self-sufficient in defence manufacturing.
• This restructuring is aimed at transforming the ordnance factories into productive and profitable assets, deepening specialisation in the product range, enhancing competitiveness, improving quality and achieving cost efficiency.
• It 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
• This move would allow these companies autonomy and help improve accountability and efficiency.

Ordnance Factory Board

• OFB, consisting of the Indian Ordnance Factories, is a giant industrial setup which functions under the Department of Defence Production of the Ministry of Defence. 
• OFB, headquartered at Kolkata, is a conglomerate of 41 Factories, 9 Training Institutes, 3 Regional Marketing Centres and 4 Regional Controllers of Safety.
• It is the oldest and largest industrial setup and possesses the unique distinction of over 200 years experience in defence production. 
• Significance: A major chunk of the weapon, ammunition and supplies for not just armed forces but also paramilitary and police forces comes from the OFB-run factories.
• Production includes: 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.