Dr. S. Samuel C. Rajiv, Research Fellow, Manohar Parrikar Institute for Defence Studies and Analyses (MP-IDSA), spoke on “New Defence Public Sector Undertakings and Exports” at the Monday Morning Meeting held on 9 December 2024. The session was moderated by Mr. Arvind Khare, IDAS, Senior Fellow, MP-IDSA. Scholars of the Institute were in attendance.

Executive Summary

 Dr. S. Samuel C. Rajiv spoke on the transformation of the Ordnance Factory Board (OFB) into seven Defence Public Sector Undertakings (DPSUs) in 2021. This pivotal reform sought to enhance operational efficiency and align with the goals of the Atmanirbhar Bharat initiative. Significant challenges persist, including reliance on imports for key components and limited R&D investments. Addressing these shortcomings is crucial for achieving self-reliance and global competitiveness in defence manufacturing.

Detailed Report

 Mr. Arvind Khare highlighted the transformation of the erstwhile Ordnance Factory Board (OFB) into seven new Defence Public Sector Undertakings (DPSUs) as a critical reform. These DPSUs produce a range of arms and weapon systems, including lightweight torpedoes, and export to around 100 countries. Since 2020, there has been a strong emphasis on defence exports, with the government targeting ₹35,000 crore in exports within five years. In FY 2023- 24, defence production surpassed ₹1.27 lakh crore, with exports exceeding ₹21,000 crore. There are ambitious targets of ₹1.75 lakh crore in production and ₹50,000 crore in exports by 2029. Mr. Khare underlined the importance of OFB corporatisation, implemented on 1 October 2021, to address issues such as high costs, inconsistent quality, and delays under the OFB’s previous structure. He emphasised the role of DPSUs in driving technological advancements, fostering spin-offs for Indian industries, and improving accountability and efficiency, noting that government support has been instrumental in their progress.

Dr. S. Samuel C. Rajiv started his presentation by emphasising the importance of self-reliance in the defence industry and how the restructuring of the Ordnance Factory Board (OFB) into

seven Defence Public Sector Undertakings (DPSUs) in 2021 marked a major reform in India’s defence production sector. This corporatisation, inspired by the Kelkar Committee’s 2005 recommendations, aims to enhance operational efficiency, autonomy, and competitiveness. Aligned with the Atmanirbhar Bharat initiative, it emphasises on indigenisation and self- reliance in defence manufacturing. India’s defence production reached a milestone of ₹1 lakh crore in 2022-23, with a target of ₹1.6 lakh crore by 2024-25. DPSUs like Hindustan Aeronautics Ltd., Bharat Electronics Ltd., and Mazagon Dock Shipbuilders Ltd. significantly contributed to this growth, while the private sector’s increasing involvement reflects a diversified and evolving defence production ecosystem.

Dr. Rajiv stated that the seven new DPSUs, i.e., Munitions India Limited (MIL), Armoured Vehicles Nigam Limited (AVNL), Advanced Weapons and Equipment India Limited (AWEIL), Troop Comforts Limited (TCL), Yantra India Limited (YIL), India Optel Limited (IOL), and Gliders India Limited (GIL), have distinct specialisations. AVNL leads in armoured vehicles with high indigenisation levels, while MIL dominates ammunition production and exports. YIL focuses on ammunition components, and AWEIL excels in artillery and small arms with export ambitions. IOL contributes advanced sighting systems, TCL specialises in extreme climate gear, and GIL is a key parachute manufacturer for military and civilian uses. Collectively, these entities are driving modernisation and export potential.

Dr. Rajiv highlighted that India is solidifying its position as a global defence exporter, ranking 23rd according to SIPRI in 2019. Defence exports were cumulatively worth ₹84,645 crore during 2014-24, with a target of ₹50,000 crore for FY 2028-29. Southeast Asia and Africa are key markets for the new DPSUs, while they have started exporting to some European countries as well. Products like munitions and armoured vehicles are gaining international traction. Despite progress, the new DPSUs face significant challenges. High production costs, reliance on imports for critical components, delayed payments, and limited R&D investments hinder profitability and innovation. Legacy issues, such as fixed-price contracts and employee concerns post- corporatisation, also pose obstacles to growth.

Dr. Rajiv explained that to ensure sustainability and global competitiveness, the new DPSUs must increase R&D investments, foster collaborations with private and international partners, and enhance marketing strategies. Addressing operational inefficiencies and closing indigenisation gaps will reduce reliance on imports and strengthen India’s defence production capabilities. He opined that the corporatisation of OFB into DPSUs represents a transformative shift in India’s defence manufacturing landscape. By addressing existing challenges and building on reforms, India can achieve self-reliance and establish itself as a global leader in defence innovation and exports.

Questions and Comments

 Before opening the floor for a Q&A session Mr. Khare mentioned that despite significant support from the government, erstwhile OFB struggled with performance of its ordnance factories regarding high costs and supply delays. It was suggested that reducing the captive customer model could drive the need to seek new customers and to become competitive for participation in open tendering for procurement by the armed forces.

MP-IDSA scholars posed a wide range of questions regarding expectations from new DPSUs and challenges being faced by them. Key questions included the duration of government support, the extent of private investment, and methods to assess indigenisation efforts by the new DPSUs. Evaluating the quality of indigenisation involves determining appropriate benchmarks, addressing duplication, and incorporating feedback to improve competitiveness and efficiency.

The report has been prepared by Dr. Shayesta Nishat Ahmed, Research Analyst, Defence Economics and Industry Centre, MP-IDSA.