India's Newest Defence PSUs Have Their Work Cut Out
India's new defence PSUs created after Ordinance Factory Board rejig will have to compete with private peers.
In a major reorganisation of India's defence manufacturing complex, the government corporatised the Ordinance Factory Board last year.
From Oct. 1, 2021, all the 41-operating and non-operating units were merged based on the work they do into seven companies wholly owned by the Ministry of Defence.
The PSUs under the Department of Defence Production have been merged based on their function: ammunitions; transport logistics; guns and artillery; weapons hardware; troop accessories like bullet proof jacket, uniforms; electronics like optical instrument; and parachute manufacturing. The final entities are:
Munitions India Ltd.
Armoured Vehicles Nigam Ltd.
Advanced Weapons and Equipment India Ltd.
Troop Comforts Ltd.
Yantra India Ltd.
India Optel Ltd.
Gliders India Ltd.
Six of these made provisional profit in the six-month period ended March 2022. Yantra was unprofitable but Rajeev Puri, chairman and managing director of the company, said it has been able to reduce its losses and will soon be profitable.
India's defence industrial complex comprises various R&D institutions that come under the Defence Research and Development Organisation or DRDO. And attached to them are manufacturing units--public and private-- that supply arms and ammunition to the armed forces.
The reorganisation of the Ordnance Factory Board is a major step to bring in some parity with the emerging private defence companies. Earlier, all defence acquisitions were largely on a nominated basis. The Ministry of Defence would directly assign production to the board based on requirement from the armed forces.
The reorganisation would mean the new defence companies will have to compete against the private sector to bag these orders. Of course, these defence PSUs continue to have the cost advantage in terms of production cost, but it does bring in a level-playing field for the domestic private sector. And here lies the challenge and opportunity. The defence PSUs can now not only compete with the private sector for global orders but also look at newer markets to grow.
Puri said Yantra eyes a turnover of a billion dollars in the next five years. For the current fiscal, it expects to hit Rs 2,800 crore compared with Rs 1350 crore in the previous financial year. Yantra war created by merging eight OFB manufacturing units.
Russia's ongoing war in Ukraine has created a demand from nations to augment their arms inventory. And this is helping developing defence manufacturing nations to supply them with arms and ammunitions.
Rajesh Choudhary, the chairman and managing director of Advanced Weapons and Equipment India Ltd., incorporated from merger of eight arms manufacturing units, told BQ Prime that its order book has grown from Rs 4,000 crore in FY22 to Rs 7,000 crore as of September.
The country is creating the defence India stack, including R&D institutions, defence PSUs, private defence companies and startups, and micro, smal and medium enterprises that form the supply chain.