1. Dismantling the Ordnance Factory Board

Relevant for GS Prelims & Mains Paper II; Polity & Governance

The Ordnance Factory Board (OFB), the first of whose industrial establishments was set up in 1801, will cease to exist from October 1, and the assets, staff, and operations of its 41 ordnance factories will be transferred to seven defence public sector units (DPSUs).

Also in the OFB tent are nine training institutes, three regional marketing centres, and five regional controllers of safety. The government has gone through with the corporatisation in the face of strong opposition from workers’ federations, including the one affiliated to the RSS.

A large chunk of the weapons, ammunition, and supplies used by the armed forces, and paramilitary and police forces, come from OFB-run factories. Their products include civilian and military-grade arms and ammunition, explosives, propellants, and chemicals for missile systems, military vehicles, armoured vehicles, optical and electronic devices, parachutes, support equipment, troop clothing, and general store items for the armed forces.

For-against corporatisation

The restructuring of the Kolkata-headquartered OFB into corporate entities was recommended in one or the other form by at least three expert committees on defence reforms set up in the last two decades — the TKS Nair Committee (2000), Vijay Kelkar Committee (2005), and Vice Admiral Raman Puri Committee (2015). A fourth committee, constituted by former Defence Minister Manohar Parrikar and chaired by Lt Gen D B Shekatkar, did not suggest corporatisation, but recommended regular audits of all ordnance units considering past performance.

The central argument has been that corporatisation, which will bring these entities under the purview of The Companies Act, would lead to improvements in efficiency, make products cost-competitive, and enhance their quality.

It has been argued that OFB’s monopoly has led to innovation drying up, apart from low productivity, high costs of production, and lack of flexibility at the higher managerial levels.

Functioning directly under the Ministry of Defence, the OFB and its factories could not retain profits, and thus had no incentive to work towards increasing them, many have argued.

Discussions on restructuring with workers’ federations had failed to produce results on several occasions previously. Employees argued that corporatisation was a “move towards privatisation”. They expressed fears of job losses, and said a corporate entity would not be able to survive the unique market environment of defence products with its unstable demand-supply dynamics.

The federations have insisted the factories have been innovative, and have repeatedly proven their worth as a “war reserve”. Many OFB products are exported, they have argued.

Ordinance about ordnance

Corporatisation was listed as one of the 167 “transformative ideas” to be implemented in the first 100 days of the second Narendra Modi government in 2019. In May 2020, giving details of the fourth tranche of the Atmanirbhar Bharat initiative, Finance Minister Nirmala Sitharaman announced the decision to corporatise OFB for “improving autonomy, accountability and efficiency in ordnance suppliers”.

On September 10 last year, the government appointed a consortium led by KPMG Advisory Services as a strategy and implementation consultant for the proposed corporatisation. The following day, an Empowered Group of Ministers (EGoM) for Corporatisation was formed with Defence Minister Rajnath Singh as chairman “to oversee and guide the entire process, including transition support and redeployment plan of employees while safeguarding their wages and retirement benefits”.

In October 2020, the government declared a proposed strike by workers’ federations “invalid and illegal”. Following talks between the three federations and ministry officials, the workers deferred their plan for an indefinite strike. But as no reconciliation could be reached, the government announced this June that the OFB would be split into seven DPSUs.

With the federations adamant, the government brought an Essential Defence Services Ordinance (EDSO) at the end of July, which aimed primarily to stop workers of ordnance factories from going on strike.

Protests from workers

The almost 75,000 workers at the 41 factories and their allied units are mainly affiliated to three federations: the All India Defence Employees’ Federation (AIDEF), a federation of Left unions; the Indian National Defence Workers’ Federation (INDWF), affiliated to the Indian National Trade Union Congress (INTUC) of the Congress; and the Bharatiya Pratiraksha Mazdoor Sangh (BPMS), which is the part of the RSS’s Bharatiya Mazdoor Sangh (BMS).

From the time the government first proposed corporatisation in 2019, the three federations had formed an unlikely joint front. In one of their first representations to the defence minister in 2019, they said that converting the ordnance factories into a corporation was commercially unviable, and that “the experience of the past two decades is that corporatisation is a route to privatisation”.

The federations described the government’s decision of June 2021 as “good news for private corporations and foreign arms manufacturers”. In mid-July, however, the Congress’s INDWF said they would no longer oppose the corporatisation because the defence minister had promised that workers’ rights would be protected. The BPMS of the RSS and AIDEF of the Left refused to step back.

Seven successor DPSUs

The government has said that the OFB will be split into seven PSUs: Munitions India Ltd, Armoured Vehicles Nigam Ltd, Advanced Weapons and Equipment India Ltd, Troop Comforts Ltd, Yantra India Ltd, India Optel Ltd, and Gliders India Ltd. Each of these PSUs will run clusters of ordnance factories involved in manufacturing similar categories of products. Training and marketing establishments that have been part of the OFB will also be divided among the seven PSUs, officials have said.

On August 2, Minister of State for Defence Ajay Bhatt told Rajya Sabha in a written reply: “The employees…shall continue to be subjected to all rules and regulations as are applicable to the Central Government servants. Their pay scales, allowances, leave, medical facilities, career progression and other service conditions will also continue to be governed by the extant rules, regulations and orders, as are applicable to the Central Government servants. The pension liabilities of the retirees and existing employees will continue to be borne by the government.”

The BPMS and AIDEF have said October 1 will be marked as a Black Day. The report of a referendum, which shows the majority of workers are opposed to corporatisation, would be submitted to the defence minister, the federations have said. A petition in the Supreme Court against the law banning strikes is also in the works. Their fight will continue, even as the requirements of the armed forces are not allowed to suffer, the workers’ bodies have said.

According to the federations, the recent order worth Rs 7,523 crore to Heavy Vehicles Factory (HVF), Chennai for 118 units of the Main Battle Tank Arjun’s Mark-1A variant for the Army, is testimony to the reliability of the ordnance factories.

Source: The Indian Express

2. Why cartels can be even worse than monopolies

Relevant for GS Prelims & Mains Paper III; Economics

Last week, the Competition Commission of India found that three beer companies — United Breweries Ltd (UBL), Carlsberg India Pvt Ltd (CIPL) and Anheuser Busch InBev India — had colluded to fix beer prices for a full decade — between 2009 and 2018. As a result, the CCI slapped a penalty of Rs 873 crore on the companies as well as the All India Brewers Association (AIBA) and 11 individuals for cartelisation in the sale and supply of beer in 10 states and Union Territories.

However, for helping out the investigations, the CCI gave differing levels of relief to the companies. In particular, Anheuser Busch InBev India — which serves global brands such as Budweiser and Corona as well as local brews such as Haywards and Knockout — received a 100% relief from the penalty because its officials helped the CCI investigation into the functioning of the cartel.

Oddly enough, the companies blamed government rules, which require them to seek approvals from state authorities for any price revisions, as the main reason for forming a cartel.

What is a cartel?

Cartels can be difficult to define. According to CCI, a “Cartel includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services”.

The International Competition Network, which is a global body dedicated to enforcing competition law, has a simpler definition. The three common components of a cartel are:

an agreement;

between competitors;

to restrict competition.

“The agreement that forms a cartel need not be formal or written. Cartels almost invariably involve secret conspiracies. The term competitors most often refers to companies at the same level of the economy (manufacturers, distributors, or retailers) in direct competition with each other to sell goods or provide services. The aspect of a restriction on competition distinguishes conduct that targets open competition from benign, ordinary course of business agreements between firms,” it states.

How do cartels work?

According to ICN, four categories of conduct are commonly identified across jurisdictions (countries). These are:


output restrictions;

market allocation and


“In sum,” writes Bruce Wardhaugh in his book titled Cartels, Markets and Crime, “participants in hard-core cartels agree to insulate themselves from the rigours of a competitive marketplace, substituting cooperation for competition”.

How do cartels hurt?

While it may be difficult to accurately quantify the ill-effects of cartels, they not only directly hurt the consumers but also, indirectly, undermine overall economic efficiency and innovations. According to the Organisation for Economic Co-operation and Development, “A successful cartel raises the price above the competitive level and reduces output. Consumers choose either not to pay the higher price for some or all of the cartelised product that they desire, thus forgoing the product, or they pay the cartel price and thereby unknowingly transfer wealth to the cartel operators”.

In other words, by artificially holding back the supply or raising prices in a coordinated manner, companies either force some consumers out of the market by making the commodity (say, beer) more scarce or by earning profits that free competition would not have allowed.

“Further, a cartel shelters its members from full exposure to market forces, reducing pressures on them to control costs and to innovate. All of these effects adversely affect efficiency in a market economy,” states an OECD policy brief.

How might cartels be worse than monopolies?

It is generally well understood that monopolies are bad for both individual consumer interest as well as the society at large. That’s because a monopolist completely dominates the concerned market and, more often than not, abuses this dominance either in the form of charging higher than warranted prices or by providing lower than the warranted quality of the good or service in question.

However, in his book, Bruce Wardhaugh explains how cartels could extract a higher social cost than even monopolies.“…Monopolies are a source of social loss through two sorts of productive inefficiencies. The first sort, reduced product innovation, is a greater problem with cartels than monopolies,” he writes.

Here’s the intuition. “…due to the explicit agreement of non-competition and profit guarantees among cartels, any incentive to improve one’s product is removed.”

In other words, unlike a monopolist, who may be forced to undertake product innovation — lest some new firm figures out a more efficient way of providing the good/service — members of a cartel sit pretty because they know that while none of them may be individually dominant in the market, by synching their pricing or productive actions they not only act as a monopolist but also rule out the possibility of allowing some new firm from upstaging the whole arrangement.

“Further,” he writes, “given that innovation would require the expenditure of research and development costs (which would be unnecessary due to a cartel-wide agreed ‘stand-still’ on innovation), such investment would not be undertaken. Since the monopolist, unlike the cartelist, must be concerned with other firms developing goods which may be less expensive substitutes for its goods, the monopolist may have greater incentive for research and development expenditure. Thus, these social costs of reduced product innovation may be greater with cartels.”

In other words, apart from the whole issue of charging higher prices, cartels (as against monopolists) neither have any incentive to invest in research aimed at improving their product nor do they see any reason why they should boost investments towards making the methods of production more efficient.

The end result is that both the individual consumer as well as the society at large suffers.

How to stop the spread of cartelisation?

Cartels are not easy to detect and identify. As such, experts often suggest providing a strong deterrence to those cartels that are found guilty of being one. Typically this takes the form of a monetary penalty that exceeds the gains amassed by the cartel.

“If, for example, the chances that any given cartel would be discovered and punished were one in three, then a fine that would provide an adequate deterrent would have to be three times the actual gain realised by the cartel. Some believe that as few as one in six or seven cartels are detected and prosecuted, implying a multiple of at least six,” states the OECD document.

However, it must also be pointed out that it is not always easy to ascertain the exact gains from cartelisation.

In fact, the threat of stringent penalties can be used in conjunction with providing leniency — as was done in the beer case when Anheuser Busch InBev India was provided with 100% relief from the CCI penalty — in order to incentivise whistleblowers exposing cartels and their functions.

Source: The Indian Express

3. The DGCA’s crackdown on drug use by aviation workers

Relevant for GS Prelims & Mains Paper II; Polity & Governance

Starting January 31, flight crew members and air traffic controllers in India will be tested for psychoactive substances such as cannabis and cocaine, as per new rules notified by the Directorate General of Civil Aviation (DGCA).

Why has the DGCA brought in the new rules?

In its order, the aviation safety regulator noted that the worldwide spread of use of psychoactive substances, their general availability, and the increasing number of addicted users was a “serious concern to aviation safety”.

Last year, just before the Covid-19 pandemic hit India, the DGCA had issued draft rules where it proposed to set up diagnostic infrastructure to conduct the tests.

However, the regulator came out with another set of draft rules a few weeks ago, in which it left the responsibility of conducting the tests to the airlines and the air traffic services provider on the lines of breath alcohol testing.

In India, the Airports Authority of India (AAI) is responsible for air traffic services.

What are the rules?

Scheduled commercial airlines and air navigation service providers will have to carry out random drug-testing of at least 10% of the flight crew members and air traffic controllers employed by them every year, according to the rules.

Commercial aircraft operators, maintenance and repair organisations, flying training organisations, and air navigation service providers will have to carry out drug tests before employing any person or admitting a trainee pilot.

These organisations will also have to test, at the first available opportunity, all those aviation personnel who have refused a drug test to a foreign regulator during flight operations to that country.

Aviation workers will be tested for psychoactive substances such as amphetamine, cannabis, cocaine, opiates, barbiturates, and benzodiazepine.

Any positive test will have to be reported to the DGCA within 24 hours.

What happens if a person is found positive in a drug test?

According to the rules: “Such employees shall be subjected to rehabilitation process by the organisation before return to active duty. Number of such cases shall be reported to DGCA on a six-month basis.”

In case the report of a drug test is “non-negative”, the employee will be immediately removed from duty till a confirmatory report is received.

If the confirmatory test — which is being done for the first time — is also positive, then the employee will be referred to a de-addiction centre by the organisation for a de-addiction-and-rehabilitation programme.

“Such an employee shall return to active duties after again having undergone the tests for the consumption of the psychoactive substance with a negative test report. In addition, a fitness certificate by the medical in-charge of the concerned organisation shall be required,” the rules say.

What about repeat offenders?

If a worker is found positive in a drug test for the second time during work, their licence will be suspended for three years.

If someone tests positive for a third time, their licence will be cancelled.

Source: The Indian Express

4. A scheme before its time: On digital health mission

Relevant for GS Prelims & Mains Paper II; Polity & Governance

National Digital Health Mission

Prime Minister Narendra Modi has announced the National Digital Health Mission, the most salient aspect of which is that all citizens will have the option of voluntarily opting for a Health ID, a 14-digit health identification number that will uniquely identify every citizen and will be a repository of their medical history. Illustratively, it will contain details of every test, every disease, the doctors visited, the medicines taken and the diagnosis. The portability this offers implies a person will, in theory, never have to haul around their reports. The doctor who is examining the patient can give more well-informed advice because it is possible that patients may not consider aspects of their medical history relevant to share with a doctor, or sometimes may forget about them, but which may be valuable for a better diagnosis. This id can be created by using a person’s basic details and mobile number or Aadhaar number, and there will presumably be an app acting as a convenient interface.

What is the more important need?

As snazzy as all of this sounds, a digital health id right now is really a solution looking for a problem. There is no clear justification that the immobility of medical records is an insurmountable obstacle to the provision of affordable, high-quality health care in India.

The challenge of health care in India, as decades of research and the experience with the novel coronavirus pandemic have shown, can be expressed quite simply. There are too few hospitals with trained staff to cater to all Indians. But expanding the health-care system will not be easy.

India’s federal structure, the size of its population — and a large rural one at that — the cost of researching, finding and buying appropriate drugs and treatment, competing systems of medicine and the very challenging nature of health itself, mean that the issues are manifold. The graver problem is that the technocratic sheen of a digital health id hides a mammoth store of personal data, which in the absence of a privacy law and little public awareness and control over their data, could be open to misuse. There is the danger that any large private insurance company could use sophisticated algorithms across the health and other databases to construct risk-profiles for people and make access to affordable insurance difficult. Also, data mining can prioritise certain rich demographics for their services and direct public and private resources to people who can afford a high premium for their services rather than to those who need them but cannot pay as much. For a digital health ecosystem to work, it is important that the fundamentals be fixed from the ground up.

Source: The Hindu