PSU/OFB: If they’re so good, why are they so scared?

On May 17, the Trade Union Forum for Self-Reliance in Defence (a formal group comprising trade union officials, DPSU and OFB employees) presented Defence Minister AK Antony with a memorandum asking the government to desist from implementing the Kelkar Committee recommendations. The memorandum was presented in the hope that Antony would strike a sympathetic note the next day (May 17) in his inaugural speech at the OFB General Managers conference in the Capital. As it turned out, he didn’t, and whether it was under the advice of Defence Secretary Shekhar Dutt (a vociferous critic of the OFB), or his own perspective, there were some harsh things said. The truth always hurts. But first, here’s a look at that memorandum, ludicrous in parts, and fine example of why our military industrial complex will remain firmly in the Cold War breeze:

The memorandum principally highlights that “the Kelkar Committee report (released in early 2005), instead of concentrating on self-reliance in defence, is basically aimed at facilitating the entry of private sector – both domestic and foreign – in a big way, at the cost of public sector defence industries, the pioneer of self-reliance in defence sector.” The memorandum then goes on to make the following observations, some of them preposterous. My remarks in, err, red:

1. The composition of Kelkar Committee itself is questionable as it did not include the major stake holder i.e. the employees. The report is totally flawed in its approach when instead of reducing imports through strengthening of the existing public sector defence industry, it has embarked upon a policy of giving maximum space to private sector in defence sector. It has given undue stress on export of arms, which is not a sphere where a country like India would try to project itself like USA or Israel. [The Kelkar Committee was asked specifically to look at how the private sector can be given a greater level of participation in high technology defence products. That was the Committee’s mission! It was not a Committee on how to clean up DPSUs and the OFBs. And Kelkar in his report speaks specifically of exporting defence systems. What is wrong with that? A higher policy decision on export of lethal arms is always possible — who the hell is such a group to decide that? And undue stress is an exaggeration. There is a single section on making export possibilities robust, and nowhere does it talk of lethal arms specifically.]

2. Security perception, so vital for nature of preparedness of armed forces vis-à-vis long term production/ acquisition of programme and defence system is totally missing in the report. No evaluation has been made to assess strength, weakness, opportunity and threat to the existing defence industries, infrastructure, expertise and R&D. No exercise has been undertaken in the report either at macro level or at micro level for achieving self-reliance with technological upgradation and R&D input to achieve optimal capacity utilisation in public sector defence industry to address India’s security needs. [Again, the Committee was not asked to investigate the “nature” or “form” of self-reliance. It was simply asked to recommend structural transformation roadmaps to make defence production more competitive, both for the public and private sectors]

3. Kelkar Committee report unabashedly pleads for entry of private sector at every level, not as a supplementary player, but as a major player, creating ‘Raksha Utpadan Ratna’ (RUR) in private sector, with public funds assured to private sector in the name of R&D for earning profit through defence exports that too with tax concession. [A superb example of the unhealthy phobia and protectionist nonsense that commies still think they should enjoy. If they think they’re so darn good at reaching self-reliance, (a) why hasn’t it happened? and (b) what’s wrong with a little competition and cooperation? Unfortunately, this isn’t a welfare state, nor does it have money oozing out from every pore]

4. It deprives DPSUs and OFB of a level playing field with private industries. OFB and DPSUs are captive industries of defence services. Unless they reach optimal capacity utilisation, technological upgradation and necessary autonomy, the question of so called competition with private sector does not arise. [Level playing field! The private sector has a huge number of flaws and frequently has the latitude to play dirty, but let’s not kid ourselves about a level playing field. That’s the ONLY thing they don’t have!]

5. Private sector, would be mostly in collaboration with foreign firms under the cover of Indian private sector. Defence MNCs would be given a straight forward entry in the most strategic area of the country. This will jeopardise country’s security. With spectre of terrorism looming large, a free access to private sector both Indian and foreign in arms and ammunition manufacturing would be a serious security hazard for the country. [I think a smart government will know where to allow foreigners in and where not to. What’s wrong with foreign cooperation, or with Indian firms tying up with foreign ones. The stuff will still be built by our OFBs, as that’s a singular competence yet, with some notable exceptions of course!]

6. Private industries have been allowed to develop and produce defence products as long back as in May 2001 and a number of captains of industry were given industrial license. However, till date response from these industries is not encouraging. Private industries do not want to undertake development and production of defence goods which is capital intensive where there is no assurance for getting sustained order for the products developed. Private industries therefore want the government to fund development expenditure and ensure quantity sufficient to keep their business interests alive. Such government funding of private entities under any nomenclature RUR etc is unprecedented and totally uncalled for. This will encourage some ‘fly-by-night’ operators in the defence industry to earn quick money through trading. [Let’s get real here. The private sector is in it for the business. They’re definitely not in it for “desh ka seva”. Second, a private firm cannot work on open ended assurances. This doesn’t happen, even if it can in a PSU, which anyway has the government as a safety net. Let’s not kid ourselves about something else as well. This memorandum hasn’t been submitted because the people who’ve submitted it want a great and strong India, or are fearful of sinister foreigner in our corridors of power. They’ve submitted it because they’re terrified of losing their jobs, which is, in the event a slightly near-sighted fear. In the event, the Kelkar committe (a little outside its purview) recommends that all cooperation between the public and private sectors be streamlined so that there is no attrition or downsizing.

7. Private sector industries, who do not have the expertise in manufacture of defence goods, will collaborate with overseas firms for participating in the tender process and demonstrate their capabilities. Even today for procurement of items categorised as “Make”, they are fielding equipment mostly taken from overseas defence industries. Once private industry bags such an order against RFP, it may continue to import the complete product or major assemblies from the collaborators for supply to defence forces and in the process earn profit through trading. This method neither generates employment nor promotes self-reliance. The threat of disruption in supply will certainly loom large if the overseas country decides to hold back product support. This phenomenon of stoppage of supply by overseas industries has been experienced a number of times in the past, especially at the time of crisis. This goes totally against the concept of self-reliance as it would erode indigenous sustainability of our defence sector. With spectre of terrorism looming large, a free access to private sector, both Indian and foreign, in arms and ammunition manufacturing would be a serious security hazard for the country. [A load of nonsense. How would this account for companies like L&T, Ashok Leyland, Astra Microwave, Tata and M&M?]

8. Serious lack of investment in fundamental R&D has been main reason to achieve the envisaged vision of reaching self-reliance index of 70 – 75 per cent through DRDO which is at present hovering around 30 – 35 per cent. Kelkar Committee has not reviewed this aspect at all. [Wrong again. The Kelkar Committee quotes the Parliamentary Standing Committee’s 11th report about fundamental R&D.]

9. In the case of defence public sector units (DPSUs), the main issue is availability of the state-of-the-art technology, which matters in such a sophisticated sector. To achieve the same DPSUs need sufficient resources/funds to take up modernisation. If only a part of amount spent on imports is utilised for upgradation of technology of these well established PSUs with their expertise and infrastructure, the same can boost the self-reliance index. [Self-contradictory, so I won’t waste a line.]

10. Kelkar Committee talks about Mini Ratna and Navaratna status with an eye on joint ventures and independent directors. The idea is only to give entry to private sector in the Boards of DPSUs. For strategic sector like defence PSUs, when given status of Mini Ratna or Navaratna, they should not follow the present criteria of independent directors. It has to be ensured that in the name of independent directors, private competitors are not allowed in the Boards through FICCI or CII. DPSUs should not be forced to go for joint venture as a part of creeping privatisation, which is actually aimed in Kelkar report. [What’s with the distrust of the private sector? Are they not Indian as well? If they do well, aren’t they going to pay more taxes? What is this absolute shit about not allowing private sector directors on PSU boards?]

And now, for what Antony said the next day at the OFB conference:

The Defence Minister Shri A K Antony has called upon Ordnance Factories to maintain quality and delivery schedule so as to keep its customer base intact. Stressing the need to give a fresh momentum to country’s indigenization efforts so that the country can achieve self reliance in the field of defence production, the Minister said a major part of the responsibility to achieve this goal lies with the ordnance factories. Inaugurating the Conference of General Managers of Ordnance Factories in New Delhi today, Shri Antony expressed the hope that the conference will chart out a futuristic roadmap for ordnance factories. He said, ‘there is an urgent need to thoroughly review the fixation of targets, placement of indents and authorization for expenditure’. The Defence Minister said that the procurement procedure of OFB too needs to be streamlined to avoid time and cost overruns.

Referring to the complaints regarding quality of the products as well as feedback from the customers that the products are not delivered on time, Shri Antony said, customer satisfaction is and should be guiding force of any enterprise. He said OFB has so far been functioning only as a departmental production agency without any commercial orientation. He said ‘in fact, the OFB should strive to become commercially proactive’. He also called upon the Defence Production agencies to shed old mindsets and excessive secrecy. The Defence Minister said ordnance factories must equip themselves to face competition and re-orient themselves as proactive and viable commercial organizations. He called upon the ordnance factories to work in close tandem with the end user, i.e. Armed Forces so that production and supplies are planned and executed in a scientific manner. ‘Our objective should be long-term planning for target fixation and production’ Shri Antony said.

Underlining the need for a high-level consumer satisfaction, the Minister asked ordnance factories to seek feedback reports from the consumers on a regular basis and carry out time-bound re-appraisal based on the feedback and rectify the defects in the products. Referring to the defence procurement procedure, the Defence Minister asked ordnance factories to strive to maximize transparency in their financial dealing and management as procurement is done on a large-scale and from various sources.

In his key note address the Secretary Defence Production Shri K P Singh complimented ordnance factories for having played a very crucial role in achieving self-reliance in defence production. However, he said, self-reliance in defence not only means self reliance in production but also self-reliance in developing new products so that our armed forces are fully equipped to meet all kinds of threat that the nation faces today. He regretted that the performance of the ordnance factories in this sphere was not encouraging. Shri Singh said, ‘ordnance factories have not shown the ambition of developing major products and have been content with the role of a technology recipient’.

In this connection, he asked ordnance factories to emulate the example of HAL which has developed world class products like ALH and IJT. Shri Singh said OFB is in the armament business where major customers are armed forces and the paramilitary forces. He said, ‘OFB does not have the luxury to choose its customers and therefore has to earn the respect from the customers for product quality, timely deliveries and cheaper products to earn the good will. Unfortunately, Indian army does not perceive OFB as a manufacturer of defence equipment of global quality standards.’ He further added that huge manufacturing infrastructure available with the factories will always play a crucial role in the national defence and the time has come for the efficient utilization of these productive resources.