The finance ministry is also considering allocating Rs 1,165 crore from the defence ministry’s budget for the modernisation of the defence PSUs. The proposal will need Parliament’s approval

The Ministry of Finance has sanctioned an advance of Rs 1,000 crore from the Contingency Fund of India to meet the emergent operational requirements of seven new Defence Public Sector Undertakings (DPSUs) as they come up on October 1 with the dissolution of the 246-year-old Ordnance Factory Board (OFB). has learnt that the sanction came through earlier this month.

As per government sources, this amount will temporarily fill up the gap till an initial corpus of Rs 2,500 crore is set up to meet the emergent operational requirements of the new DPSUs for the next few years.

The recommendation of setting up this corpus came from an Empowered Group of Ministers (EGoM) headed by defence minister Rajnath Singh. The idea was to handhold the DPSUs in the beginning in case their financial targets are not immediately realised.

While the finance ministry is considering the recommendation of a Rs 2,500-crore corpus, it has sanctioned the advance amount of Rs 1,000 crore from the Contingency Fund of India to meet urgent requirements of the new DPSUs, if any. This is because setting up the Rs 2,500 crore corpus would first need the approval of Parliament.

Drawing out funds from this sanctioned amount of Rs 1,000 crore will, however, need the approval of defence minister Rajnath Singh. Constituted under Article 267(1) of the Constitution, the Contingency Fund of India is an emergency fund for use by the government during a sudden crisis or to meet any unforeseen expenditure. Since 2005, the contingency fund corpus was Rs 500 crore. In the Union budget of 2021-22, it was proposed to raise the amount to Rs 30,000 crore.

The finance ministry is additionally considering allocating Rs 1,165 crore to the new DPSUs from the existing budget of the defence ministry for the planned modernisation of the DPSUs. This proposal from the defence ministry will also need Parliament’s approval.

The erstwhile OFB was allocated a revenue budget of Rs 13,657 crore in the financial year of 2021-2022 and Rs 665 crore under the capital budget. On June 16 this year, the Union cabinet had cleared the long-pending reform to corporatize the OFB – with its 41 factories – into seven fully-owned government entities such as Defence Public Sector Units.

The idea of the reform plan was to “enhance functional autonomy, efficiency and unleash new growth potential and innovation". There were complaints from the defence forces on the unsatisfactory quality of the equipment manufactured by OFB and the delay in their delivery schedules. Multiple high-level committees had recommended the corporatisation of the OFB.

Subsequent to the cabinet decision, the defence ministry last week ordered the dissolution of the OFB from October 1 and the transfer of its assets, employees and management to the seven new DPSUs.

Sources said discussions are on to hold the event at the Advanced Weapons and Equipment India Limited in Kanpur – one of the seven newly-formed DPSUs that will be engaged in manufacturing weapons and equipment. Munitions India Limited, Armoured Vehicles Nigam Limited, Troop Comforts Limited, Yantra India Limited, India Optel Limited, and Gliders India Limited are the other DPSUs.

“It will be ensured that issues or differences, if any, with the seven DSPUs could be ironed out within the first few days after they become operational on October 1,” a government source said.

Over the last few months, a series of meetings were held between the defence ministry and the OFB unions, which were vehemently opposing the move and had also threatened to go on an indefinite strike. Secretary of defence production in the Ministry of Defence, as well as defence minister Rajnath Singh, had met the unions on June 16 this year.

During a nearly three-hour-long meeting with the three recognised Defence Civilian Employees’ Federations — All India Defence Employees’ Federation, Indian National Defence Workers’ Federation and Bhartiya Pratiraksha Mazdoor Sangh — the defence minister had assured the unions that the interests of the employees would be protected while implementing the decision of OFB corporatisation.

A government statement had mentioned that Singh had appealed to the federations to continue discussions with the department, and that issues, if any, would be considered “sympathetically by the Empowered Group of Ministers under his Chairmanship”.

As per the statement, Secretary (Defence Production) Raj Kumar had clarified that the new corporate entities would be 100% government-owned and suggested that further discussions with the employees’ representatives should continue to identify specific issues that can be brought before the EGoM from time to time.

The government had also told them that their service conditions would not be inferior to the ones they had signed up for in the OFB.