India's small arms factories have been struggling with various problems, including reduced demand from the armed forces, under-utilised production capacity, unsuccessful attempts to develop new weapons, high costs and mounting inventory, a parliamentary panel has found.
The Public Accounts Committee (PAC), in a report presented in Parliament recently, examined the problems affecting the country's small arms factories and recommended a series of measures, including better demand predictions and closer monitoring of research and development projects, according to a report by PTI.
Between 2015-16 and 2019-20, the factories received either "no demand or very little demand" from the armed forces for some of their main products, including the 5.56 mm INSAS rifle, 5.56 mm Light Machine Gun (LMG) and 9 mm auto pistol.
The Indian Army accounted for just 10 per cent of the total issues during this period, and the factories were largely dependent on orders from the home ministry. However, orders from the MHA were "insufficient" to utilise the full production capacity of the three factories, the panel said.
The findings are part of the PAC's 54th report on 'Production of Small Arms in Ordnance Factories', based on CAG Report No. 5 of 2023 relating to the department of defence production of the defence ministry.
According to the panel, a combination of factors, which included declining demand from the Army, insufficient orders from the MHA and production shortfalls in major items supplied to the home ministry, resulted in significant under-utilisation of manufacturing capacity.
For key products such as the 5.56 mm INSAS rifleand the 5.56 mm LMG, the factories managed to utilise a maximum of only 29 per cent of their respective production capacities between 2015 and 2020.
The PAC has now recommended that the defence ministry consider "institutionalising a multi-year roll-on demand plan" covering the Indian Army, MHA, state police forces and Advanced Weapons and Equipment India Limited (AWEIL), so that "factories aren't caught idle after sudden demand drop-offs".
The committee also wants the ministry to conduct an in-depth study of changing demand patterns.
In cases where demand has structurally shifted, including because of indigenous rifle imports or changes in procurement policy, the panel said the government should examine whether installed production capacity itself needs to be recalibrated rather than merely seeking additional orders to utilise excess capacity.
Declining demand was not the only problem identified by the committee. Efforts to develop new and more modern small arms also "failed to meet the milestones and expectations" set out in the perspective plan for 2016-17 to 2018-19.
"The R&D projects also failed to meet their objectives. During the period being audited, the armed forces resorted to import of small arms viz., 7.62 X 51 mm assault/ sniper/LMG for their operational requirements," the report said.
The committee noted that no R&D project was completed within its originally scheduled timeframe, while some projects were short-closed.
It also found that all three small arms factories were simultaneously working on weapons of the same calibre "without integrating their efforts".
The PAC has consequently called for a "proper monitoring mechanism" to ensure the timely and successful completion of R&D projects.
The panel also highlighted the financial problems facing the factories.
According to the report, the small arms factories operated with "high overheads", pushing up the unit cost of production. At the same time, issue prices were fixed substantially below the actual production costs.
This resulted in cumulative losses of ₹366 crore across the three factories on 12 selected small arms between 2015 and 2020.
Inventory management emerged as another major concern. As of March 31, 2020, the three factories together held inventory worth ₹641 crore, equivalent to 72 per cent of their total cost of production.
The panel also identified a "structural disconnect" between the production warrant system, which was based on OFB extracts, and the advance payment system based on proforma invoices. There was no linkage between the quantity authorised under production warrants and the payments received.
As a result, "production continued even when payments had not been received", the committee said.
The PAC has called for stronger inventory management, including better demand forecasting, greater consideration of fluctuations in demand and increased oversight.
It recommended that ordnance factories incorporate cost-efficiency metrics and goals into their inventory management systems and improve their demand-forecasting procedures.
The committee also called for annual stock verification to be used effectively to improve decision-making and urged the defence ministry to ensure that "best available practices" are adopted to maintain healthy inventory levels.
The audit period preceded the restructuring of the Ordnance Factory Board. The OFB was subsequently dissolved and its 41 ordnance factories were converted into seven Defence Public Sector Undertakings with effect from October 1, 2021.
The three small arms factories covered by the report were brought under Advanced Weapons and Equipment India Limited (AWEIL), headquartered in Kanpur.
The underlying CAG report made 12 recommendations covering four broad areas — production performance, quality of small arms, cost-effectiveness and R&D.
