CHAPTER VII
Ordnance Factory Organisations

40.    Performance of Ordnance Factory Organisation

40.1    Introduction

Thirty-nine Ordnance Factories, with a manpower of 1.39 lakh are engaged in production of arms, ammunition, equipment clothing, etc. primarily for the Armed Forces of the country. In order to utilise available spare capacities, Ordnance Factories manufacture items also for civil trade. At the apex level, Ordnance Factories are managed by a “Board” which is responsible for policy formulation, supervision and control. Director General is the ex-officio chairman of the Ordnance Factory Board. He is assisted by nine Members/Addl Director General of Ordnance Factories, who are in charge of various staff and line functions.

The broad grouping of ordnance factories with reference to their production is as under:

 

Divisions

No. of factories

(i)

Materials and Components

9

(ii)

Weapons, Vehicles and Equipment

10

(iii)

Ammunition and Explosives

10

(iv)

Armoured Vehicle

5

(v)

Ordnance Equipment Factories

5

On the basis of the product the factories are also classified as metallurgical (6), engineering (18), filling (5), chemical (4) and ordnance equipment (6).

Note:    The figures incorporated in this paragraph are mainly based on Annual Accounts of Ordnance and Ordnance Equipment Factories in India finalized by Principal Controller of Accounts (Factories) Calcutta, documents maintained by Ordnance Factory Board Calcutta and information supplied by Ordnnace Factory Board, Calcutta.

40.2    Revenue expenditure

The expenditure under revenue head during 1996-97 to 2000-2001 is given in the table below:

(Rupees in crore)

Year

Total expenditure incurred by ordnance factories

Receipts against products supplied to Armed Forces

Other receipts and recoveries*

Total receipts

Net expenditure of ordnance factories

1996-97

3272.30

2416.22

433.06

2849.28

(+) 423.02

1997-98

4050.47

2852.93

517.06

3369.99

(+) 680.48

1998-99

4461.72

3854.92

598.59

4453.51

(+) 8.21

1999-2000

4994.88

5124.43

700.61

5825.04

(-) 830.16

2000-2001

6016.94**

5209.17

839.54

6048.71

(-) 31.77

*    The figures under this column are not reflected in the Appropriation Accounts of Defence Services and hence the figures of net expenditure as shown above do not tally with the figures shown in Appropriation Accounts of Defence Services.
**    This does not include the expenditure incurred by D.A.V.P. 
D.A.V.P. - Department of Audio Visual Publicity

Though the total expenditure during 2000-2001 has increased by 20.46 per cent as compared to the previous year, the increase in total receipt was only marginal at 3.84 per cent as compared to the previous year.

40.3    Analysis of performance of OFB

40.3.1    General

In 2000-2001, outturn of Ordnance Factory Chanda was highest at Rs 1119.83 crore with 94.5 per cent material components while that of Ordnance Cable Factory Chandigarh was the lowest at Rs 29.66 crore with material components at 52.70 per cent.

Following five Ordnance Factories recorded highest outturn:

Sl. No.

Name of the Ordnance Factory

Amount (Rupees in crore)

1.

Ordnance Factory, Chanda

1119.83

2.

Vehicle Factory, Jabalpur

720.45

3.

Ordnance Factory, Khamaria

604.82

4.

Ordnance Factory, Bolangir

369.94

5.

Ordnance Factory, Ambajhari

325.27

The five Ordnance Factories which recorded lowest outturn were as under:

Sl. No.

Name of the Ordnance Factory

Amount (Rupees in crore)

1.

Ordnance Cable Factory, Chandigarh

29.66

2.

Ordnance Equipment Factory, Hazratpur

30.12

3.

Machine Tool Prototype Factory, Ambernath

38.06

4.

Grey Iron Foundry, Jabalpur

39.92

5.

Ordnance Factory, Bhusawal

40.07

40.3.1.1    The following table indicates element-wise cost of production during the last five years :

(Rupees in crore)

Element

1996-97

1997-98

1998-99

1999-2000

2000-2001

(a) Material

2299.79
(58.53)

2502.08
(57.07)

3268.98
(60.08)

4483.62 
(63.27)

4413.34 
(61.09)

(b) Labour

272.48
(6.94)

264.94
(6.04)

319.93
(5.88)

406.62 
(5.74)

510.86 
(7.07)

(c) VOH

548.21
(13.95)

651.47
(14.86)

707.56
(13.00)

877.03 
(12.37)

910.60 
(12.61)

(d) FOH charges

808.56
(20.58)

966.09
(22.03)

1144.66
(21.04)

1319.22 
(18.62)

1389.31 
(19.23)

Total

3929.04

4384.58

5441.13

7086.49

7224.11

VOH - Variable Overhead
FOH - Fixed Overhead
Figures in bracket are percentages to the total cost of out turn.

Element-wise break up of cost of production

(Rupees in crore)

However, it may be noted that the cost of components procured by a factory from other sister factories gets included in the cost of production of both the factories thereby inflating to that extent, the cost of production of Ordnance Factory Organisation as a whole.

For instance, in 2000-2001, inter factory transfers amounted to Rs 2336.17 crore and the total cost of production of Ordnance Factories as a whole inflated to the extent these components were actually consumed by the procuring factories.

40.3.2    Issue to users

The indentor wise value of issues during the last five years was as under:

(Rupees in crore)
 

1996-97

1997-98

1998-99

1999-2000

2000-2001

Army

1964.99

2427.02

3339.46

4637.33

4544.74

Navy

46.56

60.39

62.49

85.24

86.93

Air Force

107.47

106.12

89.42

105.80

170.63

MES, Research and Development (Other Defence Department )

65.31

59.23

79.61

126.41

124.83

Total Defence

2184.33

2652.76

3570.98

4954.78

4927.13

Civil Trade

381.55

417.96

441.08

498.96

603.07

Total issues

2565.88

3070.72

4012.06

5453.74

5530.20

40.3.3    Production programme vis-a-vis progress

Production of several items for which targets had been fixed by Ordnance Factory Board was behind schedule. Details showing the number of items for which the demands existed, number of items for which target was fixed and number of items manufactured and the number of items for which target was fixed but production of items was behind schedule during the last five years are furnished in the table below:

Year

No. of items for which demands existed

No. of items for which target fixed

No. of items manufactured as per target

No. of items for which target fixed but production was behind schedule

1996-97

331

289

195

94

1997-98

284

234

161

73

1998-99

353

288

222

66

1999-2000

364

307

238

69

2000-2001

375

284

196

88

Ordnance Factory Board stated that production of 88 items was behind schedule mainly due to non-finalisation/non-availability of design/drawings/bulk production clearance, non-availability of indents in sufficient quantities.

40.3.3.1    Spill over production in Ordnance Factories

It was noticed that in respect of 19 major items the production spilled over beyond the financial year 2000-2001. Although the full production and issues as per target was reported by March 2001, the production and actual issue was yet to be completed till August 2001. The value of spill over items for the year 2000-2001 worked out to Rs 514.60 crore approximately out of total cost of production amounting to Rs 7224.11 crore. Due to the spill over of the production, the expenditure on production for material, labour and overhead cost may be incurred in the following year either wholly or in part even though the issues have been accounted for in the accounts of 2000-2001. Some of the accounting implications arising from this situation may be:-

(i)    In the year of ‘reported’ issue, either partial or nil expenditure is booked under labour, material etc. against the relevant warrant whereas full credit is taken for issues thereby making finished stock account show abnormal profit.

(ii)    In the subsequent year (year of actual manufacture and issue) as the expenditure incurred on manufacture is booked partly or wholly as the case may be without taking any credit on account of issues, the finished stock account would show abnormal loss. Thus, there is need to strengthen monitoring of production performance vis-a-vis target at various levels so that targets of issues are actually achieved in physical terms rather than reporting of issues without actual issues.

Ordnance Factory Board stated in January 2002 that major expenditure like labour and material were booked to avoid any budgetary constraints and also added that all out efforts were being made to minimize such happenings.

40.3.4    Capacity utilisation

The capacity utilisation of a factory is assessed in terms of standard (Standard Manhour (SMH) means the average output expected of an average skilled worker as per the grades provided for in the estimates engaged in production activities in the ordnance factory for one hour. This does not include factors like setting time, fatigue allowance etc.) man-hours (SMH) and machine hours. The tables below indicate the extent to which the capacity had been utilised in terms of SMH and machine hours during the last five years:

(Capacity utilisation in terms of SMH)
(Unit in lakh hours)

Year

Capacity in SMH

Utilisation in SMH

1996-97

1848

1558

1997-98

1650

1539

1998-99

1436

1639

1999-2000

1508

1839

2000-2001 1464 1892

(Capacity utilisation in terms of machine hours)
(Unit in lakh hours)

Year

Machine hours available

Machine hours utilised

1996-97

1271

936

1997-98

1341

972

1998-99

1266

959

1999-2000

1875

1368

2000-2001

2144

1715

40.3.5    Export and civil trade

The capacity created in ordnance factories was not being utilised to the full extent because of diminishing orders from Armed Forces. The Ministry decided in July 1986 to diversify and enter the civil market within the country and tap the export potential of ordnance factories to utilise their capacity.

40.3.5.1    Export

The following table shows the achievement with reference to target in export from 1996-97 to 2000-2001.

Year

Number of factories involved

Target (Rs in crore)

Achievement (Rs in crore)

Percentage of achievement

1996-97

8

25.00

3.22

12.88

1997-98

13

25.00

23.83

95.32

1998-99

13

25.00

13.46

53.84

1999-2000

11

8.5

6.19

72.82

2000-2001

15

10.00

11.79

117.90

40.3.5.2    Civil trade

The turnover from civil trade other than supplies to Ministry of Home Affairs and State Government Police Departments during 1996-97 to 2000-2001 was as under:

Year

Number of 
factories involved

Target 
(Rs in crore)

Achievement
(Rs in crore)

Percentage of
achievement

1996-97

38

180.00

137.96

76.64

1997-98

38

180.00

168.34

93.52

1998-99

38

185.00

178.74

96.67

1999-2000

38

206.49

206.38

99.95

2000-2001

38

220.22

235.72

107.04

Thus the volume of civil trade has been steadily showing an upward trend since 1996-97.

40.3.5.3    Non-realisation of amount towards civil trade

According to the directive issued by Ordnance Factory Board in June 1985, all civil indentors are required to pay in cash or through demand draft in advance with the order in full or irrevocable letter of credit. However, Rs 15.34 crore was outstanding against civil indentors for supply of different items to them as on 31 March 2001. Ordnance Factory Board stated (January 2002) that the outstanding dues from civil indentors had come down to Rs 11.23 crore as of December 2001.

40.3.6    Utilisation of manpower

40.3.6.1    Employees of the Ordnance Factory Organisation are classified as (i) "Officers", who man senior supervisory levels, (ii)"Non-Gazetted" (NGO) or "Non-Industrial" employees (NIEs) who man junior supervisory levels & clerical establishment and (iii) "Industrial employees" (IEs), who are engaged in the production and maintenance operations. The number of employees of various categories during the last five years is given in the table below:

(In number)

Category of employees

1996-97

1997-98

1998-99

1999-2000

2000-2001

Officers

3331

3579

4140

4043

3853

Percentage of officers to total manpower

2.14

2.33

2.76

2.77

2.77

NGO/NIEs

49462

42920

42483

42334

40792

Percentage of NGO/NIEs to total manpower

31.81

27.94

28.31

28.98

29.29

IEs

102675

107137

103444

99693

94611

Percentage of IEs to total manpower

66.03

69.73

68.93

68.25

67.94

Total

155468

153636

150067

146070

139256

40.3.6.2    The expenditure on labour is charged to production in two ways - ‘direct labour’ representing expenditure on labour relating directly to production and ‘indirect labour’ representing other expenditure on labour like maintenance and other activities incidental to production, etc. The expenditure on direct and indirect labour for the last five years is shown below:

(Rupees in crore)
 

1996-97

1997-98

1998-99

1999-2000

2000-2001

(a) Total indirect labour

410.52

557.34

675.61

604.33

624.82

(b) Total direct labour

260.89

289.94

345.86

425.00

525.80

(c) Percentage of indirect labour to direct labour

157.35

192.22

195.34

142.20

118.83

Percentage of indirect labour to direct labour varied between 118.83 and 195.34 per cent during 1996-97 to 2000-2001 and was 118.83 per cent in 2000-2001 which was the lowest.

40.3.7    Supervision charges

(a)    Supervision charges vis-a-vis total wages:

(i)    The supervision charges incurred in the following four ordnance factories exceeded their total wages with High Explosives Factory Kirkee incurring maximum supervision charges of Rs 1.61 against each rupee spent on total wages.

Sl.No.

Name of the Ordnance Factory

Supervision charges for each
rupee incurred on total wages

1.

High Explosives Factory Kirkee

Rs 1.61

2.

Ordnance Factory Itarsi

Rs 1.32

3.

Ordnance Factory Bolangir

Rs 1.15

4.

Ordnance Factory Bhandara

Rs 1.12

(ii)    In respect of 25 Ordnance Factories, the supervision charges incurred were more than Re 0.50 but less than rupee one against each rupee of wages paid to industrial employees.

(b)    Supervision charges paid vis-a-vis direct labour:

(i)    For each rupee of direct labour incurred for conversion of raw material into finished articles/components, the supervision charges incurred by High Explosives Factory Kirkee was the highest at Rs 4.21. During 1999-2000, the supervision charges incurred by High Explosives Factory Kirkee was only Rs 1.58.

(ii)    In all the Ordnance factories the superivision charges were more than 100 per cent of the direct wages.

(c)    The ratio of supervision charges to total wages and supervision charges to direct labour wages was found to vary widely even from one ordnance factory to another ordnance factory grouped under the same divisions as shown below.

Sl.No.

Division

Ratio of supervision charges to total wages

Highest

Lowest

1.

M & C Division

Ordnance Cable Factory Chandigarh (0.79:1)

Ordnance Factory Ambajhari (0.36:1)

2.

WV & E Division

Field Gun Factory Kanpur (0.80:1)

Rifle Factory Ishapore (0.40:1)

3.

A & E Division

High Explosives Factory Kirkee (1.61:1)

Ordnance Factory Chanda (0.44:1)

4.

AV Division

BMP Medak (0.92:1)

Heavy Vehicles Factory Avadi (0.64:1)

5.

OEF Division

OEF Hazaratpur(0.42:1)

OPF Kanpur (0.28:1)

 

Sl.No.

Division

Ratio of supervision charges to direct labour wages

Highest

Lowest

1.

M & C Division

MTPF Ambernath (2.8:1)

OF Ambajhari (0.85:1)

2.

WV & E Division

Field Gun Factory Kanpur (3.43:1)

Rifle Factory Ishapore (0.74:1)

3.

A & E Division

High Explosives Factory Kirkee (4.21:1)

Ordnance Factory Chanda (0.9:1)

4.

AV Division

Opto Electronics Factory Dehra Dun (2.45:1)

Heavy Vehicles Factory Avadi (1.46:1)

5.

OEF Division

OEF Hazaratpur (0.70:1)

OPF Kanpur (0.46:1)

Ordnance Factory Board stated that the supervision charges depended on the Industry norm, available technology, production processes, etc. and with the planned modernisation programme, the supervision charges might go up marginally due to the fact that modern machines would require more supervision and less direct labour.

40.3.8    Inventory management

40.3.8.1    Stock holdings

As per the existing provisioning policy, the ordnance factories are authorised to hold stock of different types of stores as under:

Sl.No.

Types of stores

Months requirement to be held in stock

1.

Imported items

12 months

2.

Difficult indigenous items

9 months

3.

Other indigenous items

6 months

40.3.8.2    The position of stock holdings during 1996-97 to 2000-2001 was as under:

(Rupees in crore)

Sl. No.

Particulars

1996-97

1997-98

1998-99

1999-2000

2000-2001

1. Working stock

a.

Active

1245.90

1462.38

1433.41

1590.70

1640.35

b.

Non-moving

77.93

109.69

146.25

139.26

157.50

c.

Slow moving

148.39

133.56

149.45

105.78

129.11

 

Total Working Stock

1472.22

1705.63

1729.11

1835.74

1926.96

2.

Waste & Obsolete

8.09

10.56

10.94

31.57

9.36

3.

Surplus/ Scrap

41.21

39.87

36.14

38.59

59.29

4.

Maintenance stores

72.82

79.80

92.80

80.63

87.37

 

Total

1594.34

1835.86

1868.99

1986.53

2082.98

5.

Average holdings in terms of number of days’ consumption

209

232

200

158

162

6.

Percentage of total slow-moving and non-moving stock to total working stock

15.37

14.26

17

13.34

14.87

It may be seen that average holding in terms of number of days’ consumption was within normal limits during 2000-2001.

40.3.8.3    The existing provisioning policy has been in effect since June 1973. In the meantime tremendous progress has been made in our country as well as world over in the field of transport and communication. With the modern facilities of communication like much more efficient telephone net work, internet, e-mail, fax etc. the purchase processing time can be greatly curtailed and therefore there is need to review stock holding limits. Ordnance Factory Board stated in January 2002 that IIM Study Report on Inventory Management had been approved by them and its recommendations would be implemented after approval of the Ministry.

40.3.8.4    During 2000-2001 average stock holdings in five factories, as given below ranged between 11 and 26 months’ requirements which exceeded the existing norms.

(Rupees in crore)

Sl. No

Name of Factory

Opening Balance as on 01 April 2000

Closing Balance as on 31 March 2001

Average holding of stock

Average monthly consump-tion

Holding of stores in terms of num-bers of months consumption

1.

Heavy Vehicles Factory Avadi

496.18

571.63

533.91

20.40

26.17

2.

MTPF Ambernath

8.38

9.92

9.15

0.62

14.75

3.

Opto Electronic Factory Dehra Dun

19.61

16.16

17.89

1.24

14.42

4.

Engine Factory Avadi

38.87

40.54

39.70

3.16

12.56

5.

Ordnance Factory Ambernath

58.85

71.24

65.05

5.82

11.17

40.3.8.5    Stores found surplus on stocktaking

Stores valued at Rs 150.54 lakh were shown as surplus during stock taking during 2000-2001 out of which stores valued at Rs 73.63 lakh were found surplus at Ordnance Factory Ambernath and Rs 70.62 lakh in Vehicle Factory Jabalpur. This is a reflection on the quality of maintenance of stores records as surpluses could occur due to under statement of receipts of stores or over statement of issues. Such large surpluses at stock taking can be due to excessive quantum of nominal transactions remaining unregularised for long periods, delay in taking stores on stock charge due to quality problems etc. leading to non-accounting and therefore warrant special attention to ensure that it does not lead to loss or deterioration of stores.

40.3.8.6    Finished Stock

The details of finished stock holding (completed articles and components) during the last five years is given in the table below:

(Rupees in crore)
 

1996-97

1997-98

1998-99

1999-2000

2000-2001

Finished stock holding (completed articles)

182.58

112.72

72.78

89.33

90.75

Total value of outturn

3929.04

4384.58

5441.13

7086.49

7224.11

Holding of finished stock in terms of no. of days issue

17

9

5

4

4

Holding in terms of percentage of total value of outturn

4.65

2.57

1.34

1.26

1.17

Finished component holding

303.83

439.60

486.36

483.79

519.63

Holding of finished components in terms of no. of days consumption

99

123

150

124

143

The value of finished component holding has gone up from Rs 303.83 crore in 1996-97 to Rs 519.63 crore in 2000-2001 registering an increase of 71.03 per cent. A mention was made in paragraph 46.3.7.6 of the Report of Comptroller and Auditor General of India, Union Government (Defence Services) Army and Ordnance Factories No.7 of 2001 about the holding of finished components worth Rs 4.24 crore by Rifle Factory Ishapore out of which components valued at Rs 1.34 crore had already become obsolete and therefore it was recommended to review the position of finished components holding in various Ordnance Factories in order to take quick action for disposal of obsolete items especially because of the increasing trend of finished components holding year after year. However, there has been no significant progress.

40.3.8.7    Work-in-progress

The General Manager of an Ordnance factory authorises a production shop to manufacture an item in the given quantity by issue of warrant whose normal life is six months. Unfinished items pertaining to different warrants lying at the shop floors constitute work-in-progress.

The total value of work-in-progress as on 31 March has slightly increased in the last five years as shown in the table below:

As on 31 March

Value of work-in-progress

(Rupees in crore)

1997

1038.00

1998

1194.00

1999

1214.00

2000

1049.00

2001

1052.00

As on 31 March 2001, 6809 warrants valuing Rs 254 crore were more than one to 14 years old against the normal life of six months. Old warrants need to be reviewed at regular intervals so that the items under production may not become obsolete by the time they are completed and the expenditure rendered infructuous.

Ordnance Factory Board stated that the number of outstanding warrants as on 30.6.2001 had come down to 6142 and further efforts were being made to liquidate the old outstanding warrants.

40.3.9    Losses written off

The table below depicts losses written off by competent financial authorities.

(Rupees in lakh)

Sl. No.

Particulars

1996-97

1997-98

1998-99

1999-2000

2000-2001

1

Over issues of pay and allowances and claims abandoned

2.44

2.38

3.20

3.20

6.83

2.

Losses due to theft,fraud or neglect

0.92

1.29

2.57

5.77

0.79

3.

Losses due to deficiencies in actual balance not caused by theft, fraud or neglect

18.73

4.16

0.17

0.27

6.51

4.

Losses in transit

15.82

13.99

8.41

44.97

39.07

5.

Other causes (e.g. conditioning of stores not caused by defective storage, stores, scrapped due to Obsolescence etc.)

22.70

10.43

9.12

54.86

119.70

6

Defective storage loss

-

2.36

0.74

0.68

0.58

7.

Manufacturing Losses

527.64

893.97

399.37

595.93

603.19

8.

Losses not pertaining to stock

5.48

-

-

-

-

9

Total

593.73

928.58

423.58

705.68

776.67

40.4    Analysis of Cost of Production

40.4.1    Analysis of Overhead Charges

(a)    The details of overheads and the percentage it bears to the cost of production in respect of various Ordnance factories (division wise) and also for Ordnance factories as a whole during the last five years from 1996-97 to 2000-2001 are shown below:

Division

(Rupees in crore)

Percentage of OH to Cost of Production

Year

FOH*

VOH**

Total OH *** Charges

Cost of Production

Materials and Components

1996-97

200.47

170.09

370.56

720.00

51.47

1997-98 187.26 180.22 367.48 676.22 54.34
1998-99 220.19 192.89 413.08 743.46 55.56
1999-00 242.06 235.17 477.23 941.57 50.68
2000-01 252.18 250.67 502.85 1008.91 49.84

Weapons, Vehicles and Equipment

1996-97

257.85

176.40

434.25

985.86

44.04

1997-98 320.45 225.32 545.77 1084.42 50.33
1998-99 365.41 230.34 595.75 1410.06 42.24
1999-00 444.70 271.40 716.10 1765.37 40.56
2000-01 471.77 292.39 764.16 1926.40 39.67

Ammunitions and Explosives

1996-97

185.69

105.70

291.39

1317.96

22.11

1997-98 234.27 125.92 360.19 1531.30 23.52
1998-99 280.71 141.55 422.26 1716.19 24.60
1999-00 322.90 193.86 516.76 2686.98 19.23
2000-01 374.22 211.81 586.03 2976.20 19.69

Armoured Vehicles

1996-97

104.20

52.02

156.22

506.27

30.85

1997-98 153.59 69.26 222.85 646.12 34.49
1998-99 192.32 87.38 279.70 1100.03 25.43
1999-00 226.03 115.16 341.19 1185.59 28.78
2000-01 196.20 97.07 293.27 768.00 38.18

Ordnance Equipment Factories

1996-97

60.36

44.00

104.36

398.95

26.16

1997-98 70.52 50.76 121.28 446.51 27.16
1998-99 86.03 55.39 141.42  471.38 30.00
1999-00 83.53 61.44 144.97 506.99 28.59

2000-01

94.93

58.66

153.59

544.58

28.20

Grand total - Ordnance Factories as a whole

1996-97

808.57

548.21

1356.78

3929.04

34.53

1997-98 966.09 651.48 1617.57 4384.57 36.89
1998-99 1144.66 707.55 1852.21 5441.12 34.04
1999-00 1319.22 877.03 2196.25 7086.50 31.00
2000-01 1389.31 910.60 2299.91 7224.11 31.84

*    FOH means Fixed Overhead Charges.
**   VOH means Variable Overhead Charges.
***  OH means Overhead Charges.

It would be seen from the table above that the percentage of overheads to the cost of production was more pronounced in respect of Ordnance factories classified under M&C Division and WV&E Division where overheads consistently formed more than 40 per cent of the cost of production.

(b)    The element of fixed and variable overheads in the total cost of production varied widely from factory to factory during 2000-2001 from as high as 84.82 per cent (Grey Iron Foundry Jabalpur) to as low as 4.03 per cent (Ordnance Factory Chanda).

Details of five ordnance factories where the element of fixed and variable overheads in the total cost of production was highest are as under:

(i) Grey Iron Foundry Jabalpur

84.82 per cent of value of production

(ii) MTPF Ambernath

77.43 per cent of value of production

(iii) Ordnance Factory Trichy

73.27 per cent of value of production

(iv) Opto Electronic Factory Dehradun

69.86 per cent of value of production

(v) Metal & Steel Factory Ishapore

69.8 per cent of value of production

Ordnance Factory Board stated that the high overheads at GIF, MTPF and MSF were mainly due to low work load during 2000-2001 while at OF Trichy, the high overheads were due to phasing out of a weapon system and at OLF Dehradun, the high overheads were due to non-availability of imported vision equipment which affected the production.

Details of five ordnance factories where the element of fixed and variable overheads to the total cost of production was lowest are as under:

(i)

Ordnance Factory Chanda

4.03 per cent of value of production

(ii)

Ordnance Factory Varangaon

10.91 per cent of value of production

(iii)

Ordnance Factory Bolangir

15.16 per cent of value of production

(iv)

Vehicle Factory Jabalpur

16.13 per cent* of value of production

* in the case of Vehicle Factory Jabalpur, overheads were low due to its material component being high since VFJ was mainly assembling SKDs received from Telco/ Ashok Leyland.

(v)

High Explosives Factory Kirkee

21.63 per cent of value of production

The overhead percentage of filling/assembly factories was generally low due to the fact that the material content to the cost of production was very high due to addition of several inputs from inter factory sources.

40.4.2    Analysis of Cost of man power

The details of direct labour, indirect labour, total wages, supervision charges, ratio of supervision charges to total wages and the ratio of supervision charges to direct labour in respect of various ordnance factories (division-wise) as well as for ordnance factories as a whole during the last five years from 1996-97 to 2000-2001 are shown below:

(Rupees in crore)

Division

Year

Direct Labour

Indirect Labour

Total wages

Super- vision charges

Ratio of Supervision charges to total wages

Ratio of Supervision charges to direct labour

Materials and Components

1996-97

44.06

93.27

137.33

81.35

0.59:1

1.84:1

1997-98 43.42 119.97 163.39 92.26 0.56:1 1.12:1
1998-99 56.96 139.31 196.27 107.40 0.54:1 1.88:1
1999-00 74.89 130.36 205.25 105.59 0.51:1 1.41:1
2000-01 92.98 133.57 226.55 116.64 0.51:1 1.25:1

Weapons, Vehicles and Equipment.

1996-97

91.60

146.98

238.58

128.52

0.53:1

1.40:1

1997-98 101.12 195.93 297.05 184.20 0.62:1 1.82:1
1998-99  110.89 242.52 353.41 179.78 0.50:1 1.62:1
1999-00 124.67 215.95 340.62 197.63 0.58:1 1.58:1
2000-01 157.18 223.22 380.40 210.64 0.55:1 1.34:1

Ammunitions and Explosives

1996-97

61.13

99.47

160.60

111.48

0.69:1

1.82:1

1997-98 67.19 140.89 208.08 153.22 0.73:1 2.28:1
1998-99 82.85 161.97 244.82 160.03 0.65:1 1.93:1
1999-00 107.91 155.27 263.18 181.20 0.68:1 1.68:1
2000-01 140.16 161.72 301.88 195.83 0.65:1 1.39:1

Armoured Vehicles

1996-97

15.11

21.58

36.69

30.53

0.83:1

2.02:1

1997-98 24.59 38.05 62.64 53.25 0.85:1 2.16:1
1998-99 31.48 50.29 81.77 64.73 0.79:1 2.05:1
1999-00 41.33 45.75 87.08 69.14 0.79:1 1.67:1
2000-01 43.81 50.71 94.52 72.11 0.76:1 1.64:1

Ordnance Equipment Factories

1996-97

48.98

49.21

98.19

29.39

0.29:1

0.60:1

1997-98 53.62 62.48 116.10 37.74 0.32:1 0.70:1
1998-99 63.68 81.52 145.20 44.23 0.30:1 0.69:1
1999-00 76.20 57.00 133.20 43.91 0.32:1 0.57:1
2000-01 91.67 55.60 147.27 52.16 0.35:1 0.57:1

Grand total - Ordnance Factories as a whole

1996-97

260.88

410.51

671.39

381.27

0.57:1

1.46:1

1997-98 289.94 557.32 847.26 520.67 0.61:1 1.80:1
1998-99 345.86 675.61 1021.47 556.17 0.54:1 1.60:1
1999-00 425.00 604.33 1029.33 597.47 0.58:1 1.40:1
2000-01 525.80 624.82 1150.62 647.38 0.56:1 1.23:1

In this regard following observations are made.

(a)    Ordnance Factories on an average incurred from 54 paise to 61 paise on supervision charges against each rupee spent on total wages during 1996-97 to 2000-2001 which indicates high cost of supervision. According to Ordnance Factory Board, the supervision charges include some elements of social costs also like expenditure of Medical Officers and Staff of Training Institutes and also with the ban on recruitment and career progression of IEs to NGOs, this had the effect of higher supervision charges to some extent.

(b)    For every rupee of wages paid to the industrial employees, the supervision charges incurred in Ordnance Equipment Factory Units was the lowest and ranged between 29 and 35 paise. In all other groups, supervision charges exceeded 50 paise against each rupee of wages paid to industrial employees and were highest in ordnance factories under Armoured Vehicles Division where these ranged between 76 and 85 paise.

(c)    Further, for each rupee of direct labour incurred for conversion of raw materials into finished articles/components, the supervision charges incurred by ordnance factories were high and ranged between Rs 1.23 and 1.8.

40.5    Accounting lapses in ordnance factories

During scrutiny of Annual Accounts of ordnance factories for the year 1999-2000, Audit noticed some irregularities which led to misrepresentation of facts and figures that had a bearing on the accuracy and completeness of Annual Accounts of Ordnance Factory Organisation as brought out below:

40.5.1    Excess booking of Rs 42.34 crore against Army issue budget

During 1999-2000, Heavy Vehicles Factory Avadi prepared P issue vouchers for 120 T-72 tanks and 49 overhauled T-72 tanks and accordingly an amount of Rs 678.23 crore was booked against Army issue budget. However, they could issue only 44 T-72 tanks and 21 overhauled tanks even though full amount towards manufacture/overhaul of T-72 tanks has been booked against Army issue budget. Heavy Vehicles Factory Avadi stated in reply to an audit query that they had physically manufactured/overhauled the tanks during 1999-2000 itself and on getting acceptance from CQA (HV) who is the final inspector for clearance of tanks, the issue vouchers were prepared and sent to Ordnance Depot Avadi alongwith the inspection notes for collection of tanks. In the meantime, Ordnance Depot Avadi received instructions from Army Headquarters/MGOs Branch not to collect further tanks and as such Ordnance Depot Avadi did not collect the tanks.

In accordance with the Revised Accounting Procedure prescribed by the Ministry of Defence (Finance) in November 1995, the booking of Army issue budget for ‘A’ vehicles would be linked to the stage of manufacture and depending upon the stage of manufacture of vehicles, Army issue budget would be booked proportionately. According to this Revised Accounting Procedure, 90 per cent of the booking could be made depending upon the stage of manufacture and balance 10 per cent of price could be booked only on delivery of vehicle. Thus, even though 76 T-72 tanks newly manufactured and 28 overhauled tanks are yet to be issued to Army, Heavy Vehicles Factory Avadi had already booked an excess amount of Rs 42.34 crore against Army in their accounts for 1999-2000 which is not in accordance with the instructions issued by the Ministry in November 1995. Further more, no corresponding provision/adjustment for liabilities has been made in their Annual Accounts.

40.5.2    Accounting of fictitious profit by inflating value of issues to sister factories

Ordnance Factory Kanpur placed an inter factory demand on Field Gun Factory Kanpur in March 1998 for supply of 100 numbers each of Heat treated blank for tube (barrel) and casings required for manufacture of tube with casing for T-72 gun.

Against this demand, Field Gun Factory Kanpur issued 50 numbers each barrel and casings to Ordnance Factory Kanpur in May 1999 and January 2000. Field Gun Factory Kanpur had received these barrels and casings against an import order finalised by them earlier and these were issued to Ordnance Factory Kanpur after unpacking, cleaning and inspection. Though the issue vouchers indicated the issue price of barrel and casings at Rs 13,42,500 and Rs 3,58,200 respectively as against the imported price of Rs 8.51 lakh for each set of barrel and casings, the issue price of barrel was subsequently amended to Rs 1071996 in March 2000 by Accounts Officer, Field Gun Factory Kanpur. As a result Field Gun Factory made profit of Rs 5.79 lakh for each set of barrel and casings even though these barrels and casings had not undergone any significant operation at the factory.

Thus, due to levy of excess issue price for barrel and casings, Field Gun Factory Kanpur earned a profit of Rs 289.50 lakh during 1999-2000 without undertaking any manufacturing activity. In reply to an Audit query, the factory management stated (September 2000) that the value of issues for major items of supply was fixed by Ordnance Factory Board and for similar items of issue, an item cannot have different value of issues as per prevalent accounting procedure. The fact, however, remains that the issue price of barrel and casings was charged much in excess thereby inflating the profit of Field Gun Factory Kanpur for the year 1999-2000. Ordnance Factory Board stated in January 2002 that the point has been noted for taking remedial measures in consultation with accounting authorities to further streamline the procedure so that differences in estimated price and actual costs are minimized.

Reviews

41.    Flexible Manufacturing System

Highlights

Delays in placement of order for Flexible Manufacturing System (FMS) by Additional Director General Ordnance Factories Avadi and commissioning of the machinery by the supplier, led to a delay of ten years in positioning of the system.

(Paragraph 41.3)

The achievable capacity of FMS could only be partly utilised ranging from 28 to 9 per cent of achievable capacity during 1998-99 to 2000-01 for meagre quantities of 12 components planned for manufacture.

(Paragraph 41.4)

Even after delayed commissioning FMS failed to meet the full requirement, necessitating import of components valuing Rs 36.11 crore during August 1994 to March 2001.

(Paragraph 41.4)

41.1    Introduction

Flexible manufacturing system is a computerised numerically controlled system consisting of four identical heavy duty machining centres meant for manufacture of eight critical components of engine of T-72 tank (tank) and five components of engine of infantry combat vehicle (ICV) at Engine Factory Avadi.

Delayed procurement of FMS and consequent import of major engine components were commented in paragraph 35.6.5.1 of the Comptroller and Auditor General’s Audit Report for the year ended March 1992. Ministry of Defence in their action taken note of November 1993 stated that there was unavoidable delay in finalisation of order and import of components would stop after commissioning of FMS in mid -1994.

41.2    Scope of Audit

Audit conducted a follow-up review of induction of FMS at Engine Factory Avadi in November 2000 to examine the impact of delayed procurement and commissioning of FMS, creation of capacity with reference to requirement and utilisation of capacity of the same.

41.3    Delayed procurement and commissioning of FMS

Additional Director General Ordnance Factories, Avadi placed order for FMS in May 1991 but Hindustan Machine Tools Limited accepted the order only in March 1992 due to delay in resolving the outstanding techno-commercial issues. Engine Factory Avadi received the complete system in October 1994 against scheduled delivery period of March 1994. Although the factory management stated in December 1995 that the FMS was commissioned, certain aspects like integration of machines, reliability run, achievement of cycle time, sorting out of technical problems, furnishing of tool details and drawing for fixtures could not be completed by Hindustan Machine Tools Limited till 1995. The trial runs conducted during 1995 -1997 indicated that FMS was capable of producing only 275 sets of eight components of tank engine and 600 sets of five components of ICV engine as against designed capacity of 350 sets and 750 sets of components per annum respectively, i.e. achieving only 78 per cent of the envisaged capacity. However, the factory management accepted the FMS as fully commissioned in January 1998, and paid Rs 53.78 crore to the supplier against total cost of Rs 57.74 crore. Hindustan Machine Tools Limited requested in March 1999 to condone the lack of improvement in cycle time. Although the contract stipulated that the supplier would make adequate technological and related improvements at his own cost to ensure achievement of the stipulated cycle time, the supplier requested the factory management to delete the relevant clause from the contract. But the factory management did not concede to their request and final decision in this regard was yet to be taken by Ordnance Factory Board as of December 2000.

Thus, the FMS received in October 1994 was finally taken over in January 1998 and that too, with lesser capacity.

41.4    Underutilisation of capacity

Although FMS had achievable capacity to manufacture 600 sets of five components of ICV engine and 275 sets of eight components of tank engine, the factory management produced very negligible quantity of those components even after commissioning of the FMS in January 1998. Details of the major critical components produced through FMS and percentage of utilisation of capacity of the same during 1996-97 to 2000-01 are shown below:

Name of the components produced by FMS

Quantity in sets

1996-1997

1997-1998

1998-1999

1999-2000

2000-2001

Total

ICV Crank case

49

65

12

5

101

232

ICV Cylinder head (RH) 33 63 49 20 107 272
ICV Cylinder head (LH) 22 71 33 26 110 262
ICV Cylinder head cover (RH) Nil 64 37 154 135 390
ICV Cylinder head cover (LH) Nil 64 47 152 128 391

Tank Crank case

4

32

17

86

128

267

Tank Cylinder jacket ( RH) 2 203 57 150 124 536
Tank Cylinder jacket (LH) 2 194 43 156 114 509

Tank Cylinder head (RH)

Nil

46

60

79

84

269

Tank Cylinder head (LH) Nil 41 60 78 81 260
Tank Cylinder head cover (RH) 40 246 10 114 131 541
Tank Cylinder head cover(LH) 40 214 10 72 138 474

Total

192

1303

435

1092

1381

 

Percentage of capacity utilisation

4

26

9

22

28

 

It is seen from the above that the percentage of utilisation of FMS has been very poor since commissioning in January 1998, maximum utilisation being 28 per cent during 2000-01.

The quantity of complete set of critical components manufactured through FMS were also far less than that of engines for ICV and tank produced by the factory during 1996-97 to 2000-01 as out of a total number of 570 tank engines and 453 ICV engines produced, only 260 and 232 engines respectively were assembled using the complete sets of critical components manufactured through FMS. Due to delayed commissioning of FMS the factory management had to import components valuing Rs 21.68 crore during August 1994 to March 1998. Further, due to shortfall in production even after commissioning of the FMS the factory management had to import components valuing Rs 14.43 crore during April 1998 to March 2001. The shortfall in production of complete set of components was stated to be due to inadequate supply of castings of proper quality from Ordnance Factory Medak. Though Engine Factory Avadi ordered for 7155 number of castings on Ordnance Factory Medak up to March 2001, the latter supplied only 5155 number of castings, out of which 806 number of castings valuing Rs 3.21 crore were rejected at Engine Factory Avadi due to various defects like blow holes, oil/water leakage, peeling of bakelite, insufficient material etc.

Thus, the underutilisation of FMS was in the range of 78 to 91 per cent of achievable capacity during 1998-99 to 2000-01. As a result, the factory management failed to derive the value for money from massive investment of Rs 53.78 crore on FMS and spent an amount of Rs 36.11 crore to import the same components which could have been manufactured by this machine during this period.

The matter was referred to the Ministry in August 2001; their reply was still awaited as of December 2001.

42.    Working of Grey Iron Foundry Jabalpur

Highlights

The expenditure incurred by Grey Iron Foundry Jabalpur was always more than the revenue realised; the deficit being in the range of Rs 14.92 crore to Rs 25.98 crore which was 36 to 73 per cent of expenditure during 1997-98 to 2000-2001.

(Paragraph 42.2)

The manufacturing capacity augmented in 1988 to 7000 tonnes of casting per annum at a cost of Rs 2.78 crore remained underutilised to the extent of 21 to 47 per cent during 1996-97 to 2000-01 mainly due to lack of orders.

(Paragraph 42.3)

The available standard man-hours in respect of direct industrial employees remained unutilised in the range of 33 to 60 per cent during 1998-99 to 2000-01. Yet the management resorted to work on overtime basis for 13.42 lakh man- hours involving payment of Rs 3.04 crore.

(Paragraph 42.4)

The unavoidable rejection rates in respect of castings of nine major components were fixed in the very high range of 25 to 60 per cent. Against these, the actual rejection ranged between 20.50 and 63.76 per cent during 1996-97 to 1999-2000.

(Paragraph 42.6)

During 1998-2001 10 to 99.6 per cent of castings of two components supplied to civil customers were rejected at customer’s end.

(Paragraph 42.8.2)

The factory also suffered losses in issue to civil trade in the range of Rs 30 lakh to Rs 3.48 crore during 1995-96 to 1999-2000 except in the year of 1996-97 with reference to the minimum price to be quoted for civil trade order.

(Paragraph 42.8.1)

The overhead charges to cost of production were going up year after year and the proportion of overhead to cost of production ranged between 70.82 and 84.82 per cent during 1996-97 to 2000-01.

(Paragraph 42.5.1)

The supervision charges incurred against each rupee spent on direct labour by the factory were very high and ranged between Rs 1.62 and Rs 3.98 during 1996-97 to 2000-01.

(Paragraph 42.5.2)

Although strength of indirect industrial employees (IEs) was always less than direct IEs, the average expenditure on indirect IEs was too high and ranged between 2.19 and 6.28 times of that on direct IEs during 1996-97 to 2000-01.

(Paragraph 42.5.3)

The investment of Rs 5.19 crore in modernisation of the factory is not a judicious proposition in view of continuous losses in civil trade, underutilisation of capacity and standard man-hours and high abnormal rejection.

(Paragraph 42.9)

42.1    Introduction

Under the direction of Ordnance Factory Board, General Manager Grey Iron Foundry Jabalpur projected a demand of Rs 16.21 crore in December 2000 for procurement of plant and machinery during IXth and Xth plan for modernisation of the factory to meet the futuristic requirement of casting for existing as well as new vehicles like Stallion and LPTA etc. Since the inter factory demand has been dwindling audit undertook review of the working of Grey Iron Foundry Jabalpur with a view to assessing justification of modernisation.

The working of the Grey Iron Foundry was commented upon in paragraph 25 of the Comptroller and Auditor General’s Audit Report for the year ended March 1990 highlighting underutilisation of capacity, high machining rejection of castings and high cost of production. The continued incidence of high rejection of castings by Grey Iron Foundry on machining at Vehicle Factory Jabalpur was again commented upon in paragraph 26.8.3 of the Comptroller and Auditor General’s Audit Report for the year ended March 1993.

Ministry in their action taken note of February 1992 stated that Ordnance Factory Board and the factory were making efforts to obtain additional load from public and private sectors to increase the capacity utilisation. They also stated that the rejection and cost of production would be reduced by modernisation of the factory after introducing high pressure moulding/impulse moulding technology.

The result of the review are set out in succeeding paragraphs.

42.2    Poor financial performance of the factory

There was a wide gap between expenditure incurred and revenue realised during the period under review as indicated below:

Year

Actual Expenditure
(Rs in lakh)

Income realised
(Rs in lakh)

Deficit 
(Rs in lakh)

Percentage of Deficit

1996-97

3514.33

3323.37

190.96

5.43

1997-98

4094.69

2603.02

1491.67

36.43

1998-99

3737.04

1299.07

2437.97

65.24

1999-2K

3543.02

944.38

2598.64

73.35

2000-01

3970.56

2028.81

1941.75

48.90

The difference between the expenditure incurred and revenue realised was substantial during 1997-98 onwards touching 73.55 per cent of expenditure during 1999-2000. The Ordnance Factory Board stated in October 2001 that expenditure was being reduced by transfer of some manpower.

42.3    Underutilisation of capacity

Details of castings produced by the foundry in last five years during 1996-97 to 2000-01 and percentage of capacity utilisation with reference to achievable capacity of 7000 tonnes per annum are shown as under:

Year

Achievable capacity

Production ( in tonnes)

Percentage of 
capacity utilisation

(in tonnes)

Inter Factory
Demand

Civil trade

Total

1996-97

7000

3406

1929

5335

76

1997-98

7000

2134

3053

5187

74

1998-99

7000

663

3062

3725

53

1999-2000

7000

816

3410

4226

60

2000-2001

7000

3008

2503

5511

79

It is seen from the above that the capacity of the foundry remained unutilised from 21 to 47 per cent which was mainly due to declining order for castings from the sister factories as well as factory’s failure to capture sufficient orders from civil sectors.

Ordnance Factory Board stated in October 2001 that the achievable capacity at Grey Iron Foundry remained at 4500 tonnes per annum due to non-induction of manpower in proportion to enhancement of plant capacity to 7000 tonnes and close down of a cupola in melting shop. Ordnance Factory Board’s contention is not tenable since the factory management itself stated in March 1999 and June 2001 that the achievable capacity was re-rated as 7000 tonnes per annum after augmentation of plant and machinery at a cost of Rs 2.78 crore.

42.4    Underutilisation of standard man - hours (SMH)

Details of SMH of direct industrial employees (IEs) available, utilised and percentage of underutilisation of man-hours, overtime allowed and payment made during 1998-99 to 2000-01 are shown below:

Standard man-hours ( in lakh) (direct IEs)

Year

Available

Utilised

Unutilised

Percentage of under-utilisation

Overtime allowed (in lakh hours)

Payment made for overtime (Rs in lakh)

1998-99

16.89

11.27

5.62

33

4.57

96.37

1999-2K

17.01

6.84

10.17

60

4.49

112.63

2000-01

17.03

8.66

8.37

49

4.36

95.53

Total

50.93

26.77

24.16

 

13.42

304.53

The table indicates that the underutilisation of man-hours ranged from 33 per cent to 60 per cent during 1998-99 to 2000-01. Underutilisation of man-hours was mainly due to reduction of orders for castings from the sister factories as well as manufacture of simple castings for civil trade.

However, it was noticed that despite significant underutilisation of SMH available in Grey Iron Foundry Jabalpur, the factory management paid Rs 3.04 crore towards overtime work for 13.42 lakh hours during 1998-2001 even though 24.16 lakh man-hours remained unutilised during this period. This reflects inefficient utilisation of human resources by the factory management or lack of retraining the existing manpower to meet the needs of factory.

The factory management stated in November 2000 that work on overtime basis was necessary for meeting the target. They also added that the orders of 663 tonnes and 816 tonnes for 1998-99 and 1999-2000 were received from sister factories almost during last quarter of these years and payment for overtime up to 48 hours per week was made to the employees, which was customary and sanctioned by Ordnance Factory Board. The factory’s contention is not tenable as the overtime was being paid routinely in each and every month during 1998-99 to 2000-01 despite availability of sufficient standard man-hours.

42.5    Analysis of cost of production

Cost of production mainly includes direct material, direct labour and overheads. Overheads incurred in the Ordnance Factory are broadly classified into variable and fixed according to the nature of expenses. Variable overheads are expenses which generally vary in tune with the load on the factory including costs such as repair/maintenance of machinery, indirect labours, indirect stores etc. Fixed overheads are items of expenditure which do not depend on the volume of manufacture, but generally remain constant irrespective of the load involved e.g. pay and allowances of officers, staff of the factory establishment and Accounts Office, superannuation charges, repair/maintenance of building and railway siding, depreciation of building/machinery. The analysis of overheads brought out the following:

42.5.1    Abnormally high overheads

The element-wise cost of production at Grey Iron Foundry during the year 1996-97 to 2000-01 indicating direct material, direct labour and overhead with reference to cost of production are shown below:

Year

Direct material

Direct labour

Overhead

Total cost of production

Overhead as percentage to total cost of production

Overhead as multiple of direct cost

( Rs in Crore )

1996-97

7.28

3.86

27.05

38.19

70.82

2.43 times

1997-98

5.27

3.45

30.98

39.70

78.04

3.55 times

1998-99

4.63

2.23

31.79

38.65

82.27

4.63 times

1999-2K

3.22

2.66

32.89

38.77

84.82

5.59 times

2000-01

3.24

2.87

32.51

38.62

84.18

5.32 times

It may be seen that expenditure on direct material and labour reduced gradually while expenditure on overheads was increasing.

The proportion of direct material and direct labour to the cost of production ranged between 8.31 per cent and 19.07 per cent and between 5.76 per cent and 10.11 per cent respectively while the proportion of overhead to cost of production ranged between 70.82 per cent and 84.82 per cent during 1996-97 to 2000-01.

According to the factory management, normally 55 per cent of the cost of production comprises of pay and allowances which drastically increased due to implementation of V Pay Commission in 1998-99 and 1999-2000. This resulted in abnormal increase in overhead charges.

Ordnance Factory Board stated in October 2001 that the factory management had already taken action to reduce manpower and increase the output.

42.5.2    Abnormally high supervision charges

Year-wise trend of direct labour charges, indirect labour charges, total wages, supervision charges, ratio of supervision charges to total wages and ratio of supervision charges to direct labour during the last five years from 1996-97 to 2000-2001 are shown below:

Year

Direct labour charges

Indirect labour charges

Total wages

Supervision charges

Ratio of supervision charges to total wages

Ratio of supervision charges to direct labour

(Rupees in crore)

1996- 97

3.86

6.79

10.65

6.25

0.58 : 1

1.62 :1

1997-98

3.45

9.38

12.83

8.80

0.68 : 1

2.55 :1

1998-99

2.23

11.26

13.49

8.88

0.66 : 1

3.98 :1

1999-2K

2.66

10.26

12.92

8.56

0.66 : 1

3.22 :1

2000-01

2.87

10.98

13.85

9.04

0.65 : 1

3.15 :1

It may be seen from the above table that supervision charges ranged from 58 paise to 68 paise against each rupee spent on total wages. Further, for each rupee of direct labour incurred for conversion of raw materials to finished articles / components, the supervision charges incurred by the factory was very high and ranged between Rs1.62 and Rs 3.98.

42.5.3    Disproportionate expenditure on indirect industrial employees

Year-wise details of strength of direct and indirect IEs, expenditure on direct and indirect labour, ratio of the same as well as ratio of average expenditure on indirect IEs to that on direct IEs during 1996-97 to 2000-01 are shown below:

Year

Number of IEs

Expenditure on labour

Average expenditure per IE

Ratio of expenditure on indirect labour to direct labour

Ratio of average expenditure on indirect labour to direct labour

Direct

Indirect

Direct

Indirect

Direct

Indirect

Rs in crore

Rs in lakh

1996-97

912

737

3.86

6.79

0.42

0.92

1.76 :1

2.19 :1

1997-98

911

728

3.45

9.38

0.38

1.28

2.71 :1

3.36 :1

1998-99

893

715

2.23

11.26

0.25

1.57

5.05 :1

6.28 :1

1999-2K

879

698

2.66

10.26

0.30

1.47

3.85 :1

4.90 :1

2000-01

903

625

2.87

10.98

0.32

1.75

3.82 :1

5.47 :1

It is seen from the above that though the strength of indirect IEs in each year was always less than that of direct IEs actually involved in production and also decreasing year after year, expenditure on indirect labour was always more than that on direct labour. The expenditure on indirect labour against each rupee expended on direct labour was abnormally high and ranged between Rs 1.76 and Rs 5.05. Similarly, average expenditure on indirect IE was too high as compared to direct IE and ranged between 2.19 and 6.28 times of average expenditure on direct IE.

Thus, the factory management failed to control the major portion of overhead charges involved in supervision charges and indirect labour year after year. This could have been avoided, had the manpower profile been realistically assessed and surplus manpower been identified and suitably redeployed/retrained for other works. Ordnance Factory Board stated in October 2001 that the factory management were reducing the cost of overhead by transferring manpower to other factories shortly.

42.6    Excessive rejection in production

Grey Iron Foundry Jabalpur mainly produces castings of front/rear axle housing, cylinder head, crank case, cylinder block, MT housing, manifold intake, gear box housing etc. for different type of vehicles. Details of percentages of actual rejections in manufacture of nine major castings during 1996-97 to1999- 2000 are shown below:

Name of the casting

Percentage of actual rejection in the year

1996-1997

1997-1998

1998-1999

1999-2000

IFD item

       

Rear axle housing front

45.94

36.4

29.57

No Production

Cylinder head

45.49

38.75

No Production

No Production

Crank case

51.14

50.76

No Production

No Production

Cylinder block

29.68

31.05

30

55.83

Manifold intake

30.39

29.06

27

24.45

Manifold exhaust

28.98

27.10

26.00

24.06

Carrier Gear

49.99

51.10

28.07

No production

Gear box housing

27.64

29.96

29.00

32.10

Civil trade item

       

MT Housing

48.67

63.76

20.50

No Production

It is seen from the table that the actual rejections ranged between 20.50 and 63.76 per cent.

Besides, two types of castings viz. cylinder head and cylinder block supplied to Vehicle Factory Jabalpur were also rejected during machining at Vehicle Factory Jabalpur. Actual rejections of those castings ranged between 24 and 60 per cent during 1994-95 to1997-98 against the laid down norms of 22.5 to 28 per cent due to bad material and bad workmanship.

Ordnance Factory Board stated that the castings of Grey Iron Foundry were very intricate in nature resulting in high level of rejection. They attributed the high UAR percentages provided in the estimate as justification for the high rate. This is not acceptable as casting is only one of the stages of production of nine components of vehicle etc. and 25 to 60 per cent rejection in just one stage of production is abnormal by any standard. If 60 per cent is accepted as UAR in castings then after rejection at further stages of machining etc. perhaps the net result would be dismal.

42.7    High cost of manufacture of castings

Vehicle Factory Jabalpur procured three types of castings worth Rs 14.86 crore during 1995-96 to 1998-99 from trade at a cheaper unit cost as shown below due to short supply of castings from Grey Iron Foundry Jabalpur and high rejection of the same at machining stage.

Year

Shaktiman crank case

Shaktiman Cylinder head

Nissan cylinder block

Factory Cost (Rs)

Trade Cost (Rs)

Ratio of Factory Cost to Trade Cost

Factory Cost (Rs)

Trade Cost (Rs)

Ratio of Factory Cost to Trade Cost

Factory Cost (Rs)

Trade Cost (Rs)

Ratio of Factory Cost to Trade Cost

1996-97

23979

13600

1.76 :1

2375

985

2.41 :1

20399

6200

3.29 :1

1997-98

30469

14550

2.09 :1

3074

1200

2.56 :1

24650

6527

3.77 :1

1998-99

30469

13204

2.30 :1

3974

988

3.11:1

47318

6100

7.76 :1

It may be seen that the cost of production at Grey Iron Foundry was two to eight times nearly the trade cost even though the trade cost must have included a good element of profit as against Grey Iron Foundry which was incurring losses in its issues.

Ordnance Factory Board stated in October 2001 that these items were not in production now as those vehicles were phased out. However, since the factory has now entered in civil trade and its cost of production has to be comparable to trade cost, it is essential to control the cost of production to continue in civil trade.

42.8    Loss in civil trade activities

42.8.1    Due to dwindling demands from sister factories Grey Iron Foundry entered the civil market in 1991 to obtain workload with a view to utilise surplus capacity of the factory. The principal civil customers of various castings of the factory are Indian Railways, Bharat Heavy Electricals Limited, Hindustan Machine Tools Limited etc.

Ordnance Factory Board stated in October 2001 that the factory obtained orders from competitive civil trade markets and met the challenge to supply the castings in quantity and quality. But the fact remains that the factory incurred losses in civil trade activities with reference to cost of production and value of issue during 1995-96 to 1999-2000 as shown below:

 

Particulars

Rs in crore

   

1995-96

1996-97

1997-98

1998-99

1999-2000

1

Elementwise cost

         
 

Direct Labour

0.45

0.37

0.83

1.00

1.26

Direct Material 2.42 1.66 2.67 2.76 2.35
Overhead 3.16 2.54 6.36 12.32 17.69

2

Total cost of production

6.03

4.58

9.86

16.08

21.30

3

Value of issue

2.33

2.56

4.47

4.20

3.67

4

Loss with reference to cost of production (2-3)

3.70

2.02

5.39

11.88

17.63

5

Cost as per pricing formula for civil trade (Labour+Material+20 per cent of overhead)

3.50

2.55

4.77

6.22

7.15

6

Loss based on pricing formula for civil trade (5-3)

1.17

Nil

0.30

2.02

3.48

It is seen from the table that the factory could not control the cost of production and sustained huge loss in issue to civil trade in the range of Rs 2.02 crore to Rs 17.63 crore with reference to the cost of production.

Ordnance Factory Board authorised General Managers of all Ordnance Factories in November 1996 to quote minimum price of civil trade items computed on the basis of direct labour plus direct material plus 20 per cent of total overhead charges keeping in view of maximisation of turnover. Even with reference to that formula, the factory also suffered loss in issue to civil trade in the range of Rs 0.30 crore to Rs 3.48 crore annually during 1995-96 to 1999-2000 except in the year of 1996-97.

42.8.2    It was noticed that the castings supplied by the factory to its civil customers were rejected at the consignee’s end thereby adversely affecting the credibility of Grey Iron Foundry. Details of a few such cases are given below:

Name of the casting

Name of the consignee

Value of order (Rs in lakh)

Quantity supplied (Number)

Quantity rejected (Number)

Percentage of rejection

Value of rejection (as per cost of production) (Rs in lakh)

Value of castings returned (Rs in lakh)

Net loss (Rs in lakh)

1998-99
Fuel pump support


DCW
Patiala


1.34


102


26


25


0.73


0.08


0.65

Water connection

DLW
Baranasi

0.91

780

777

99.6

5.80

0.15

5.65

1999-2000
Fuel pump support


DLW
Baranasi


24.66


1922


399


21


21.34


1.18


20.16

Fuel pump support

DCW
Patiala

3.22

240

23

10

1.12

0.07

1.05

2000-01
Fuel pump support


DCW
Patiala


7.98


594


128


22


6.25


0.38


5.87

 

Total

38.11

     

35.24

1.86

33.38

As the defective castings were returned by customers to the Grey Iron Foundry the rejection of those castings at consignee’s end during 1998-99 to 2000-01 led to a loss of Rs 33.38 lakh to the factory against orders of Rs 38.11 lakh. Although Ordnance Factory Board worked out the loss as Rs 6.53 lakh based on value of issue, the same is not acceptable as the loss is due to abnormal rejection and the same is to be calculated based on cost of production.

42.9    Modernisation plan

General Manager Grey Iron Foundry Jabalpur under direction of Ordnance Factory Board projected a demand of Rs 16.21 crore in December 2000 for procurement of plant and machinery during ninth and tenth plan period for modernisation of the factory to meet the futuristic requirement of casting for existing as well as new products like Stallion, LPTA vehicles. The factory management had already incurred an expenditure of Rs 3.68 crore during 1996-97 to 2000-01 on procurement of plant and machinery from renewal and replacement as well as new capital grant. Ordnance Factory Board, however, stated in October 2001 that out of Rs 16.21 crore proposed for modernisation, equipment costing Rs 11.73 crore had been deleted and substituted by a machine costing Rs 71 lakh which was under processing. Ordnance Factory Board also stated that value for money out of investment of Rs 5.19 crore would be realised in view of the following:

  1. Load for castings of Stallion and LPTA vehicles and other items would be to the tune of 4000 tonnes in 2001-02.
  2. Expected load from civil trade would be 2000 tonnes in 2001-02.

Investment of Rs 5.19 crore in modernisation of Grey Iron Foundry is not a judicious proposition in view of continuous losses in civil trade, underutilisation of capacity and standard man-hours and high abnormal rejection. A proper, considered and well supported plan for utilisation of capacity and increasing the income was essential. In case this cannot be implemented, continuance of this factory itself requires reconsideration.

The matter was referred to the Ministry in August 2001; their reply was awaited as of December 2001.

Production

Planning

43.    Blocked inventory pending manufacture of cluster bombs

Ordnance Factory Khamaria and Gun Carriage Factory Jabalpur were holding blocked inventory worth Rs 5.73 crore since December 1999 pending manufacture of cluster bombs for the Air Force.

Mention was made in Paragraph 47 of Report No.9 of 1993 regarding delay in indigenisation of cluster bombs resulting interalia, in importation of cluster bombs valuing Rs 106.65 crore by the Indian Air Force to meet its requirement. In their Action Taken Note, Ministry of Defence maintained that cluster bomb was likely to go into full scale production from 1994. Further examination revealed that Ordnance Factories failed to supply cluster bombs as per Air Force requirement which led to shortclosure of Air Force indent leaving blocked inventory worth Rs 5.73 crore at Ordnance Factory Khamaria and Gun Carriage Factory Jabalpur as discussed below:-

(a)    Against the Air Force’s development indent of August 1989 for supply of 50 cluster bombs by 1991-92, Ordnance Factory Khamaria supplied 35 bombs by 1995-96. These bombs were consumed in various trials by Air Force and were finally accepted after successful trials in November 1995. After successful trials in November 1995, the Air Force, while according bulk production clearance, had asked Ordnance Factory Board to supply (January 1996) 100 bombs with all fusing components during 1996-97.

(b)    Even though bulk production clearance was given in January 1996, Air Force had placed an indent as early as July 1991 for supplying 2000 cluster bombs with fusing components.

(c)    The bulk production of Cluster Bombs was to involve eight Ordnance Factories including Ordnance Factory Khamaria. As the factories other than Ordnance Factory Khamaria were not associated with developmental production, the Ordnance Factories had hardly any experience of manufacturing cluster bomb. Yet the Ordnance Factory Board acting upon the indent of Air Force, drew up a programme of producing 2000 cluster bombs by March 1996 which was too ambitious as well as unrealistic considering the ground realities. Ordnance Factory Khamaria had placed inter factory demand on sister factories for 24 sub-assemblies of cluster bomb for 1000 bombs, but could supply only 50 bombs between March 1997 and March 2000.

(d)    Owing to failure of Ordnance Factory Khamaria in supplying bombs as per the delivery schedule, Air Force shortclosed the indent in November/December 1999. It was observed that the Gun Carriage Factory Jabalpur, which was identified for supplying tail unit assembly, on which an inter factory demand for 500 units was placed (December 1991) to be supplied by January 1992 i.e. in less than a month time, could not supply a single unit till January 2000 when the demand was shortclosed though stores/Work-in-Progress worth Rs 2.44 crore were piled up in the factory.

(e)    On shortclosure of Air Force indent, Ordnance Factory Khamaria was saddled with the inventory worth Rs 3.29 crore pertaining to stores/sub assemblies meant for the cluster bombs.

The Ordnance Factory Board while accepting (September 2001) the facts stated that delay was mainly due to frequent changes in finalisation of drawings/specifications by Armament Research and Development Establishment. However, they argued that the shortclosure was due to technical/operational/tactical reasons. The contention of Ordnance Factory Board is not tenable as the shortclosure of indent was communicated by Air Force in November/ December 1999 itself citing delay in delivery as the reason. While accepting that due to shortclosure, Ordnance Factory Khamaria is holding blocked inventory of Rs 3.29 crore they further added that the blocked inventory will be gainfully utilised in production of 100 bombs for which indent has been received from Air Force, to be supplied by March 2003.

The matter was referred to the Ministry of Defence in June 2001; their response was awaited as of December 2001.

44.    Blocked inventory due to delayed manufacture

Failure of Ordnance Equipment Factory Kanpur to manufacture and supply Board Arty resulted in cancellation of indent by Army and blocked inventory worth Rs 23.65 lakh.

Ordnance Equipment Factory Kanpur was holding raw material of Board Arty worth Rs 23.65 lakh as blocked inventory as on December 2001. Scrutiny of relevant records revealed the following:-

(a)    Though the Army indented 325 and 144 Board Arty in June 1993 and June 1995 the Ordnance Equipment Factory Kanpur undertook manufacture between September 1995 and September 1996 after a time lag of two years three months and one year three months respectively

(b)    Ordnance Equipment Factory Kanpur could not manufacture Board Arty up to September 1996 when the Army suggested for short closure of indents at 183 numbers in view of their changed equipment holding policy. Although Army had agreed to a target of 469 Boards for 1996-97 in February 1996 and 325 Board Arty were in final stages of production, the Army refused (December 1999) to reinstate their indents stating that Ordnance Equipment Factory Kanpur had failed to supply even a single Board Arty.

Short closure of indent resulted in blocked inventory which even after putting some material to alternative use stood at Rs 23.65 lakh inclusive of semis at Ordnance Equipment Factory Kanpur.

Ordnance Factory Board while accepting the facts stated in December 2001 that the indent of June 1993 was erroneously placed by Army on Ordnance Factory Dehradun which was redirected to Ordnance Equipment Factory Kanpur in December 1993 and hence there was delay in undertaking manufacture of items at latter factory. The contention of Ordnance Factory Board is not convincing since there had been time lag of about two years between actual date of receipt of Army’s indent of June 1993 in December 1993 and actual date of manufacturing the items from September 1995.

The matter was referred to the Ministry of Defence in June 2001; their reply was awaited as of December 2001.

45.    Loss due to non-rectification of rejected fuses

8115 rejected empty fuses of a bomb manufactured by Gun and Shell Factory Cossipore have not been rectified in view of discontinuation of production line resulting in loss of Rs 46.65 lakh.

Gun and Shell Factory Cossipore manufactured and issued 59307 fuses of Mortar bomb 51 mm HE2A to Ammunition Factory Kirkee between May 1996 and August 1998. Of these, 8115 fuses valuing Rs 46.65 lakh were rejected in empty filled (Empty filled proof is testing of representative samples of fuses filled with ammunition.) proof/empty filled dynamic (Dynamic proof is a process of testing the behaviour of shell fired through the weapon.) proof by Armament Research and Development Establishment, Pune at Ammunition Factory Kirkee between October 1996 and February 1999 due to non-functioning of fuses and backloaded to Gun and Shell Factory Cossipore for rectification in November 1997 and September 1999. Gun and Shell Factory Cossipore was requested by Ammunition Factory Kirkee in April 1999 and June 1999 to supply atleast 4000 fuses in view of non-supplies from trade. But the Gun and Shell Factory Cossipore expressed inability to supply fuses on the ground that they were not in a position to manufacture fuses during 1999-2000 as the production line for empty fuses was discontinued since January 1998. Consequently Gun and Shell Factory Cossipore was holding blocked inventory worth Rs 11.91 lakh as of October 2001 besides rejected empty fuses worth Rs 46.65 lakh.

Gun and Shell Factory Cossipore stated in September 2000 that they could not undertake repair due to discontinuation of production of the fuse since January 1998. The contention of Gun and Shell Factory Cossipore is not tenable as rejection of 8115 fuses was intimated to them in August 1997.

Ministry of Defence stated in November 2001 that rejected fuses were backloaded in March 1998 but the production line for this fuses was dismantled in January 1998 itself and once the manufacturing line is dismantled and the machines/manpower are deployed for production of other priority items, it becomes difficult to undertake even repair of the non-current stores. Ministry of Defence also added that the repair work is planned to be commenced shortly and repaired fuses will be gainfully utilised. The contention of Ministry of Defence is misleading since Ammunition Factory Kirkee intimated Gun and Shell Factory Cossipore about the rejection of fuses in August 1997 and backloaded the same between November 1997 and September 1999.

46.    Futile attempt to establish production of an item

Failure of Gun Carriage Factory Jabalpur in establishing production of components of a pistol rendered infrastructure costing Rs 1.49 crore futile besides resulting in nugatory expenditure of Rs 33.39 lakh.

In order to meet enhanced requirement of small arms projected by Ministry of Home Affairs Ordnance Factory Board authorised (August 1991) Gun Carriage Factory Jabalpur to establish manufacture of body and slide of 9 mm Auto Pistol. Scrutiny of relevant records revealed that:-

(a)    Rifle Factory Ishapore short closed its two demands of January 1992 for 1000 slide and body in June 1995 because no supply was effected by Gun Carriage Factory Jabalpur for the last 3˝ years. Gun Carriage Factory Jabalpur however, placed an order in August 1995 with M/s Praga Machine Tools Limited for two Computer Numerically Controlled Machining Centres at Rs 1.49 crore on the ground that extract of Ordnance Factory Board placed on them in June 1992 for pistol was existing. Ordnance Factory Board cancelled the extract only in April 1996 in view of failure of the Carriage Factory to supply even a single pistol. Failure of Ordnance Factory Board in cancelling their extract timely resulted in avoidable procurement of machines worth Rs 1.49 crore.

(b)    The machines received in November 1997 and July 1998 were under breakdown for 66 days in 1998, 206 days in 1999 and 452 days in 2000. One machine has been under breakdown condition since July 2000 while the other one has been partially working since September 2000.

(c)    Gun Carriage Factory Jabalpur also spent Rs 33.39 lakh in manufacture of slide and body up to March 1999 without success.

Thus, Gun Carriage Factory Jabalpur failed to supply pistols and incurred infructuous expenditure of Rs 1.82 crore which could have been utilised in priority areas.

Ordnance Factory Board admitted frequent breakdown of machines and stated in September 2001 that the machines procured by Gun Carriage Factory Jabalpur are flexible and are capable of under taking different jobs. They added that loss statement to regularise nugatory expenditure of Rs 33.39 lakh has been processed by the factory and are under scrutiny by the Accounts. The contention of Ordnance Factory Board regarding use of machines by Gun Carriage Factory Jabalpur is fait accompli in as much as they are utilised for the purpose other than intended one.

The matter was referred to the Ministry of Defence in June 2001; their reply was awaited as of December 2001.

47.    Injudicious manufacture of an ammunition before development

Bulk manufacture of 1604 nos of an ammunition costing Rs 4.59 crore before clearance of pilot lot in proof was injudicious.

An Ordnance Factory was holding 1917 rounds of 155 mm HEER ammunition (ammunition) manufactured at a cost of Rs 5.49 crore during 1998-99 as of September 2001. Scrutiny of relevant records revealed the following:-

(a)    Ordnance Factory manufactured and filled 1987 shells of an ammunition during 1998-99 and out of which 383 shells were filled under pilot lot.

(b)    Proof samples from pilot lot were rejected in functional proof at a proof establishment in December 1998 and February 1999. A joint investigation carried out at the proof establishment in April 1999 attributed the failure to either faulty shell filling or shell body. These rejected pilot lot rectified by Ordnance Factory as per suggestion of joint investigation team was again rejected in proof at a proof establishment in March 2000.

(c)    Ordnance Factories procedure Manual stipulates that bulk production of new item should not commence unless pilot batches are cleared in inspection. But Ordnance Factory disregarded the Manual provision and manufactured 1604 numbers of ammunition costing Rs 4.59 crore in March 1999 which was avoidable. The Central Ammunition Depot, Pulgaon did not accept the ammunition as samples of this were under investigation. No specific reasons for failure of ammunition could be attributed so far (September 2001).

(d)    Although Central Ammunition Depot Pulgaon refused to accept the ammunition the Ordnance Factory reflected these rounds of ammunition as having been issued to Central Ammunition Depot, Pulgaon in their accounts for the year 1998-99. However Central Ammunition Depot, Pulgaon raised a discrepancy report in this regard in August 2000 due to non-receipt of material.

Ordnance Factory Board stated in September 2001 that production of 155 mm HEER ammunition at Ordnance Factory was undertaken to meet the urgent requirement of Army in anticipation that the pilot lot will go through proof test at any point of time. The contention of Ordnance Factory Board regarding undertaking of manufacture of ammunition in anticipation of successful proof clearance of pilot lot of ammunition is not tenable since the Ordnance Factory ought to have undertaken bulk manufacture of ammunition only on receipt of clearance of pilot lot in proof as per the extant provisions.

The matter was referred to the Ministry of Defence in June 2001; their reply was awaited as of December 2001.

48.    Financial repercussion due to short closure of an order

Delay in supply of boat tails by Metal and Steel Factory Ishapore to Ordnance Factory Ambajhari for an ammunition led to short closure of demand by the latter and blocked inventory of Rs 2.06 crore at the factory.

Metal and Steel Factory Ishapore, Gun Carriage Factory Jabalpur and Gun and Shell Factory Cossipore were holding blocked inventory worth Rs 2.06 crore owing to cancellation of demand for boat tail forgings of an ammunition by Ordnance Factory Ambajhari. Scrutiny of relevant records revealed the following:-

(a)    Though Metal and Steel Factory Ishapore did not possess any capacity for machining of boat tail forgings, they accepted the Ordnance Factory Ambajhari’s demand of May 1995 for supply of 15000 numbers on the ground of executing the same by obtaining assistance from Gun Carriage Factory Jabalpur and Gun and Shell Factory Cossipore.

(b)    Although Metal and Steel Factory was to execute the Ambajhari’s demand of May 1995 by July 1995 they supplied only 5500 up to March 1999. Inability of Metal and Steel Factory Ishapore to supply boat tail forging in even flow, lack of production programme for the ammunition and creation of machining facility at Ambajhari Factory forced the Ordnance Factory Ambajhari to cancel its demand of May 1995 at supplied quantity of 5500 boat tail forgings. Cancellation of Ordnance Factory Ambajhari’s demand of May 1995 had resulted in financial repercussion of Rs 2.06 crore at Metal and Steel Factory Ishapore, Gun and Shell Factory Cossipore and Gun Carriage Factory Jabalpur.

Ordnance Factory Board while accepting the aforesaid facts stated in November 2001 that in view of urgency of the store Metal and Steel Factory Ishapore was entrusted with the development of the new item despite its machining constraints.

Thus, injudicious action of Ordnance Factory Board in directing Metal and Steel Factory Ishapore to accept orders from Ordnance Factory Ambajhari for the items for which they did not possess adequate capability resulted in (i) its failure to effect supplies timely and (ii) cancellation of demand by Ambajhari factory with consequent financial repercussion of Rs 2.06 crore.

The matter was referred to the Ministry of Defence in June 2001; their reply was awaited as of December 2001.

Manufacturing

49.    Rejection due to defective manufacture

Use of incorrect composition by Ordnance Factory Dehu Road in manufacture of an ammunition resulted in rejection at proof and loss of Rs 95.58 lakh.

Ordnance Factory Dehu Road manufactured 15000 shells of an ammunition between 1992 and 1999 under 15 lots. One lot comprising 1000 ammunition manufactured in September 1998 at a cost of Rs 95.98 lakh was rejected during proof at a Central Proof Establishment in November 1998/January 1999 owing to emission of black/red smoke. The attempts made to rectify the ammunition as per recommendations of an investigation team were unsuccessful. A technical team convened at the behest of Controller of Quality Assurance (Ammunition) Kirkee in April 1999 attributed these defects to higher quantum of heat produced during burning owing to higher percentage of fuel and oxidant in the composition.

Ordnance Factory Board in October 2001 accepted the aforesaid facts.

The case was referred to the Ministry of Defence in May 2001; their reply was awaited as of December 2001.

50.    Loss due to abnormal rejection

Gun Carriage Factory Jabalpur sustained a loss of Rs 37.81 lakh due to abnormal rejection of cast iron bolsters.

Ordnance Factory Bhusawal placed a demand for supply of 233 cast iron bolsters of various sizes required for manufacture of tools for tank on Gun Carriage Factory Jabalpur in December 1992 with scheduled date of supply as of June 1993. The Jabalpur Factory supplied 102 cast iron bolsters to the Bhusawal Factory up to November 1996. As the former was unable to further supply cast iron bolsters, the latter cancelled its demand in June 1998. Audit scrutiny of relevant records revealed that:-

(a)    Subsequently Gun Carriage Factory Jabalpur had manufactured 178 cast iron bolsters of which 76 were rejected resulting in a loss of Rs 37.81 lakh. Ordnance Factory Bhusawal had to purchase 40 bolsters from trade at a cost of Rs 6.94 lakh.

(b)    Prompt action was not taken to investigate the abnormal rejection while these were occurring and Board of Enquiry was constituted by Gun Carriage Factory Jabalpur in August 1998 i.e. after short closure of demand by Ordnance Factory Bhusawal.

(c)    Board of Enquiry attributed the rejections of cast iron bolsters to inability of Foundry Section to produce castings free from blow holes. Board of Enquiry also suggested cementing by iron on the blow hole zone of castings for alternate use. The same was not agreed to by the General Manager Gun Carriage Factory Jabalpur for want of demand for these castings.

Ministry of Defence stated in November 2001 that due to process and plant limitations rejection of castings could not be prevented. This contention is not tenable as the factory had successfully manufactured and supplied 102 cast iron bolsters to the Ordnance Factory Bhusawal with the old Foundry.

51.    Rejection due to defective manufacture of propellants

Defective manufacture of propellants by Ordnance Factory Bhandara resulted in rejection of 116.25 tonne valuing Rs 6.09 crore.

Ordnance Factory Bhandara supplied 202.50 tonne propellants of 7.62 mm ammunition duly inspected by Quality Assurance Establishment (Military Explosive) Bhandara to Ordnance Factory Varangaon against the latter’s demand of June 1993. Scrutiny of relevant records revealed the following:-

(a)    Ordnance Factory Varangaon carried out suitability trials for propellants received from Ordnance Factory Bhandara before going in for bulk production. During the trials the propellant exhibited erratic ballistic behaviour due to non-repeatable performance in repeat trials and also high pressure was recorded in comparison to specified limit, resulting in rejection of 116.25 tonne costing Rs 6.09 crore.

(b)    A joint investigation committee convened by the Controllerate of Quality Assurance (Ammunition) Kirkee in March 2000 attributed non-detection of higher pressure than specified at Ordnance Factory Bhandara to the piston hole diameter of barrel at Ordnance Factory Bhandara being more than the specified limit.

(c)    The rectification of rejected propellants based on the remedial measures suggested by joint investigation committee was yet to be undertaken by Ordnance Factory Bhandara as of August 2001.

(d)    Ordnance Factory Varagaon had to import 400 tonne propellant for 7.62 mm ammunition costing Rs 18.25 crore against its three orders placed between December 1994 and February 1999 due to the failure of Ordnance Factory Bhandara to supply propellants as per required specification.

Thus, defective manufacture of propellants by Ordnance Factory Bhandara resulted in rejection of 116.25 tonne costing Rs 6.09 crore. Besides, inspection by the Quality Assurance Establishment (Military Explosive) Bhandara using barrel of higher diameter also needs investigation by appropriate authority.

Ordnance Factory Board while accepting the aforesaid facts stated in August 2001 that piston hole gauging was being introduced at Bhandara and rectification of propellants rejected at Ordnance Factory Varangaon will be taken up in phases when the spare capacity of plant are available.

The matter was referred to the Ministry of Defence in June 2001; their reply was awaited as of December 2001.

52.    Loss due to defects in charger clips of an ammunition

Defects in charger clips of an ammunition manufactured by Ordnance Factory Trichy resulted in loss of Rs 43.29 lakh.

Ordnance Factory Varangaon was holding 37.99 lakh defective charger clips of an ammunition received from Ordnance Factory Trichy between July 1997 and January 1999 in its stock as of September 2001. Scrutiny of relevant records revealed the following:-

(a)    Based on Ordnance Factory Varangaon’s demand of October 1995 and January 1997 for 94 lakh charger clips of 7.62 mm ammunition Ordnance Factory Trichy supplied 72 lakh charger clips between December 1996 and January 1999. Out of these, 39.99 lakh clips valuing Rs 43.29 lakh were rejected at Varangaon Factory due to defects like improper and broken lugs, loose/tight springs, rust etc.

(b)    Though Ordnance Factory Varangaon backloaded two lakh defective charger clips to Ordnance Factory Trichy for rectification in October 1998, the latter rectified only 20000 charger clips up to September 2001. The rectified charger clips failed in practical trial.

(c)    Despite having committed in July 2000 to rectify and despatch two lakh charger clips by August 2000, Ordnance Factory Trichy attributed the defects to inadequate storage and preservation at Ordnance Factory Varangaon and suggested to the latter in February 2001 that the charger clips be rectified at Varangaon. The General Manager Ordnance Factory Varangaon disagreed that defects in charger clips were due to long storage and inadequate preservation at Ordnance Factory Varangaon and stated that charger clips supplied by Trichy factory were rejected at receipt stage itself.

Ministry of Defence stated in September 2001 that owing to over priority attached for establishment of a new weapon, the charger clips were not taken for rectification and the same will be taken up for rectification shortly. Ministry of Defence also added that the affected lot was under segregation/rectification at Ordnance Factory Trichy in association with Ordnance Factory Varangaon representative.

Steps to identify the real cause of the defects and to take remedial action were yet to be taken as of September 2001.

53.    Loss due to failure of ammunition in proof

Rejection of ammunition manufactured by Ammunition Factory Kirkee and Ordnance Factory Dehu Road in proof resulted in loss of Rs 79.70 lakh and shortclosure of indent by Navy.

The indent placed on Ordnance Factory Board for 5300 numbers of shell star 4.5” MKN-2 (Ammunition) was shortclosed by the Navy in November 1997 at supplied quantity of 3120 numbers resulting in blocked inventory of Rs 98.32 lakh. Rejected ammunition worth Rs 79.70 lakh was also held in stock at Ammunition Factory Kirkee and Ordnance Factory Dehu Road. Audit scrutiny of relevant records revealed the following:-

(a)    Ammunition Factory Kirkee manufactured 4506 ammunition and supplied 3120 numbers to the Navy between March 1987 and March 1993. The remaining 1386 ammunition costing Rs 44.82 lakh were rejected in proof by Senior Inspector of Naval Armaments, Kirkee between January 1992 and July 1992.

(b)    Ordnance Factory Board offloaded the manufacture of remaining quantity of ammunition to Ordnance Factory Dehu Road in July 1993 as per modified drawings. However the Kirkee factory was directed by Ordnance Factory Board to constitute Board of Enquiry to suggest remedial measures to control rejection only in July 1996.

Board of Enquiry constituted by Ammunition Factory Kirkee in its findings of April 1997 did not give any specific reasons for rejection of ammunition in proof and recommended a thorough re-examination of designs, specifications, drawings of the ammunition.

(c)    Ordnance Factory Dehu Road undertook manufacture of ammunition only in May 1996 as the modified drawings were received only in January 1995. Ordnance Factory Dehu Road manufactured 400 rounds of ammunition costing Rs 34.88 lakh in 1996-97 but these were also rejected in proof and reproof in October 1997 and August 1998 respectively owing to unsatisfactory performance.

(d)    The prospect of utilisation of blocked inventory and rejected 1786 ammunition worth Rs 79.70 lakh at Ammunition Factory Kirkee and Ordnance Factory Dehu Road is remote in view of phasing out of ammunition by the Navy and blocked inventory not suitable for modified design.

Ordnance Factory Board stated in September 2001 that loss due to rejection of ammunition worth Rs 20.04 lakh has been regularised and failure of ammunition in inspection cannot be attributed to poor manufacture/workmanship/quality control during filling and assembling of this ammunition. The contention of Ordnance Factory Board is not tenable in view of the fact that 3120 rounds of ammunition out of 4506 nos manufactured by Ammunition Factory Kirkee between March 1987 and March 1993 were accepted by the Navy which goes to show that rejection of ammunition worth Rs 44.82 lakh in proof was attributable to lax process control during manufacturing at Kirkee Factory.

The matter was referred to the Ministry of Defence in June 2001; their reply was awaited as of October 2001.

54.    Loss due to defective manufacture

Defective manufacture of an ammunition by Ordnance Factory Kanpur resulted in loss of Rs 1.38 crore.

Ordnance Factory Kanpur was holding rejected 2775 shells of 130 mm HE ammunition valuing Rs 1.38 crore in their stock as of February 2001. Scrutiny of relevant records revealed the following:-

(a)    Ordnance Factory Kanpur manufactured and supplied 50000 shells of 130 mm HE ammunition to Ordnance Factory Chanda between 1994-95 and 1996-97 after clearance in inspection by Senior Quality Assurance Officer, Kanpur. Of these, Ordnance Factory Chanda rejected 2775 numbers costing Rs 1.38 crore due to lower weight than specified and backloaded the rejected shells to Ordnance Factory Kanpur during April 2000 to June 2000 for repair.

(b)    Ordnance Factory Kanpur attributed rejection of shells to non-availability of expertise for manufacture of these shells and erratic behaviour of the weighing balance. The contention of Ordnance Factory Kanpur is not tenable since with the same expertise and weighing machine they could supply 47225 defect free shells. In this regard the role of inspection authorities is also questionable as variation in weight could have been easily detected at their level.

(c)    Ordnance Factory Kanpur had not yet initiated (July 2001) action to offer the rejected shells for use as proof stock components despite decision taken to do so in February 1997.

Ministry of Defence stated in July 2001 that repair of the shells having lower than low mass is not possible for service use and the corrective measure have already been adopted by Ordnance Factory Kanpur to safeguard against recurrence of such defects which includes installation of electronic weighing machine. However, the remedial measure taken by the Ministry of Defence would only ensure better inspection and the Ministry/ Ordnance Factory Board was yet to take measures to control occurrence of defects.

55.    Unsuccessful indigenisation of 73mm ammunition

Ordnance Factories failed to stabilise indigenous production of vital components like shell body, fuses and case cartridges of 73 mm ammunition even after 12 years resulting in rejection of components worth Rs 8.95 crore and import worth Rs 3.31 crore during 1995-2000.

Mention was made in the Comptroller and Auditor General of India’s Audit Report - Defence Services (Army and Ordnance Factories) for the year ended 31 March 1996, inter-alia, about the delay in establishing indigenous production of 73 mm ammunition primarily due to delay in development of shell body and manufacture of defective fuses (HEAT Version). Ministry had stated (October 1997) that the problem had been overcome and both the items had been successfully indigenised since 1995-96/1996-97. Audit scrutiny of further developments revealed the following:-

(a)    Production of shell body:

Between February 1995 and February 2000 Gun and Shell Factory supplied 70914 numbers of empty shell body to Ammunition Factory Kirkee in 38 lots. Of the 38 lots, four lots comprising 8060 shell bodies valuing Rs 7.62 crore were rejected in empty filled proof (Empty filled proof is testing of representative samples of shell body filled with ammunition) as of August 2001. The year wise position of lots is given below:-

Year

Number of lots supplied
by GSF Cossipore

Number of lots rejected

1994-95

4

Nil

1995-96

5

Nil

1996-97

7

2

1997-98

12

1

1998-99

4

Nil

1999-2000

6

1

Since all the above lots were supplied by Gun and Shell Factory Cossipore only after they had been passed by the Inspecting Authorities at Gun and Shell Factory Cossipore normally no rejection should have taken place at the users’ end. Therefore, rejection of four lots indicated that the production of this item is yet to be fully stabilized. Besides, rejection of these lots was also a reflection on the quality of inspection.

Ordnance Factory Board stated in November 2001 that only one lot had been finally rejected and four are under reproof with new gun since gun was behaving erratically. It was not clarified whether cleared lots were proof tested with erratically behaving gun.

(b)    Fuse (HEAT) version:

Gun and Shell Factory supplied 11 lots of base part and 16 lots of nose parts of the fuse to Ammunition Factory Kirkee during 1996-97 onwards. Out of these, four lots of base part valuing Rs 87.77 lakh and five lots of nose parts valuing Rs 22.89 lakh were rejected in empty filled proof. Since these parts of fuse were supplied by Gun and Shell Factory after clearance from quality assurance establishment heavy rejection of these fuse parts indicates that not only the production of this item is yet to be fully stabilised, but is also a reflection on the quality of inspection. As a consequence 20000 filled fuses were imported during 1996-97 and 1998-99 at a cost of Rs 1.61 crore. Thus, even after 12 years, the indigenisation of fuse could not be achieved successfully.

Ordnance Factory Board stated in November 2001 that the lots are mainly failing in functioning test, the reasons for which could not be ascertained and the reasons for the rejection of fuse was being further investigated by Controllerate of Quality Assurance (Ammunition), Kirkee.

(c)    Case Cartridge:

Case cartridges were manufactured by Ordnance Factory Ambajhari and supplied to Ammunition Factory Kirkee, latter being responsible for filling the cartridge cases. However production of case cartridge and filled cartridges was also not free from problems and it was noticed that five lots of case cartridges supplied by Ordnance Factory Ambajhari and three lots of cartridge cases filled at Ammunition Factory Kirkee were rejected due to breakage of adapters. Of these, four lots of empty cartridge cases were rectified but one lot valuing Rs 21.76 lakh was lying rejected. Owing to problems/constraints in production of case cartridge and filled cartridges manufactured by Ordnance Factory Ambajhari and Ammunition Factory Kirkee respectively, Ammunition Factory Kirkee imported 12000 filled cartridge cases in December 1999 at a cost of Rs 1.70 crore.

Thus the indigenous production of 73 mm ammunition was yet to be fully stabilized and due to problems in manufacture of various components for 73 mm ammunition the Ammunition Factory Kirkee was badly lagging behind in meeting the requirement of Army as may be seen from table below despite resorting to imports of fuses as well as cartridge cases.

Year

Opening Qty. outstanding as
on 1st April

Production target
for the year

Issue during the year

Short fall

(Nos)

(Nos)

(Nos)

(Nos)

1996-97

76,228

20000

5990

14010

1997-98

70,228

30000

15010

14990

1998-99

79,842

20000

11900

8100

1999-2000

82,842

15000

9140

5860

2000-2001

71,494

11000

5390

5610

Ammunition Factory Kirkee stated in August 2001 that targets could not be met due to non-availability of use worthy components. Ordnance Factory Board stated in November 2001 that shortfall in production/issue was mainly due to proof holdups at Central Proof Establishment due to equipment frequently going out of order.

The matter was referred to Ministry of Defence in July 2001; their reply was awaited as of December 2001.

56.    Blocked inventory due to failure to manufacture a fuse

Failure of Gun and Shell Factory Cossipore to manufacture defect free fuses of an ammunition resulted in suspension of production of the ammunition and blocked inventory worth Rs 72.61 crore at Ordnance Factories.

Gun and Shell Factory Cossipore failed to manufacture defectfree fuses of 106 mm RCL ammunition. This coupled with Army’s healthy stock position of ammunition and priority for other new generation items resulted in blocked inventory of various components of the ammunition of Rs 72.61 crore at various Ordnance Factories. Audit scrutiny revealed the following:-

(a)    Ordnance Factory Khamaria had been producing this ammunition at the level of 10000 to 15000 sets per annum since sixties using the imported fuses as well as the indigenous fuses manufactured and supplied by Gun and Shell Factory Cossipore. An accident involving five casualities took place at Ordnance Factory Khamaria in January 1993 following which production of the ammunition was suspended despite having an outstanding order for 59000 rounds of ammunition. Although production of ammunition was resumed in February 1995 with imported fuse Ordnance Factory Khamaria failed to manufacture and supply the ammunition as per the target shown below:-

Year

Target (nos)

Actual supply (nos)

1996-97

15000

5246

1997-98

15000

13279

1998-99

15000

3700

Army gave no production target for the years 1999-2000 and 2000-2001 since they had sufficient stock for reserve, training and their priority for other new generation items to utilise their allotted budget for Ammunition issue.

(b)    In the meantime, the newly developed fuse of Gun and Shell Factory Cossipore was cleared in April 1997 and Gun and Shell Factory Cossipore supplied eight lots of such fuses. However, as none of the lot could pass the proof test successfully the Controllerate of Quality Assurance (Ammunition) directed to stop the modification of fuse in March 1999.

(c)    Due to discontinuation of production of the ammunition, a huge inventory of various components of ammunition worth Rs 72.61 crore lying at different factories were rendered surplus out of which blocked inventory worth Rs 1.71 crore could have been avoided as brought out below:-

Ordnance Factory Board in November 1998 asked Gun and Shell Factory Cossipore and Metal and Steel Factory Ishapore to discontinue further production and supply of shell and other hardware of 106 mm Recoilless High Explosive Antitank ammunition under manufacture at Ordnance Factory Khamaria as there was heavy accumulation of these hardwares amounting to Rs 47.42 crore at Ordnance Factory Khamaria due to non-availability of indigenous fuse under manufacture at Cossipore factory.

Despite above instructions of Ordnance Factory Board Gun and Shell Factory Cossipore placed a demand on Metal and Steel Factory Ishapore for 4000 forgings in December 1998 which was raised to 12773 forgings in February 1999 and received 4080 forgings valuing Rs 66.67 lakh from Metal and Steel Factory Ishapore between January 1999 and April 1999.

As Ordnance Factory Khamaria stopped accepting shells from Gun and Shell Factory Cossipore the latter shortclosed its demand of December 1998 at 4080 forgings in April 1999/September 1999 and as a result Metal and Steel Factory Ishapore was forced to hold blocked inventory worth Rs 1.04 crore which was provisioned by them to execute the demand of Cossipore Factory.

Ministry of Defence stated in September 2001 that though the Cossipore factory placed demand on Metal and Steel Factory Ishapore in December 1998 the requirement was intimated to the latter by the former in the beginning of 1998-99 and consequently the latter had gone ahead with the production in anticipation of demand from the former. The contention of Ministry of Defence is not tenable since if at all Cossipore factory had intimated their requirement in the beginning of 1998-99 the demand would have limited to 4000 forgings only and the same would not have been increased to 12773 forgings in February 1999. This goes to show that the Cossipore factory had failed to take note of Ordnance Factory Board’s instructions of November 1998 which led to unnecessary placement of demand and blocked inventory of Rs 1.71 crore at Ishapore and Cossipore factories.

(d)    Ordnance Factory Board stated in November 2001 that Army had given them a programme of 10000 ammunition during 2001-2002 and with this Ordnance Factories will be able to reduce the blocked inventory by Rs 18.50 crore by utilising 2500 numbers of imported fuses. Ordnance Factory Board further added that they would pursue the Army to allot targets in future years also to utilise the surplus inventory. The contention of Ordnance Factory Board only highlights pessimistic view of things as can be seen from the fact that they hope to produce only 2500 ammunition out of 10000 nos placed on them by the Army for 2001-02. Further indent of the ammunition from the Army is remote in view of Ordnance Factories failure to develop defectfree fuses till date and the manufacture and issue of ammunition to the Army without fuses is purposeless.

The matter was referred to Ministry of Defence in July 2001; their reply was awaited as of December 2001.

Provisioning of Stores and Machinery

Stores

57.    Avoidable trade procurement of cups

Procurement of brass cups KF-31 by the General Manager Ammunition Factory Kirkee from trade resulted in infructuous expenditure of Rs 7.16 crore.

To meet the requirement of cartridge 5.56 mm ammunition for the year 1999-2000 Ammunition Factory Kirkee procured 300 tonne brass cups KF-31 between September 1999 and August 2000 from Rashtriya Metal Industries Mumbai at a cost of Rs 7.16 crore. Audit scrutiny of relevant records revealed the following:-

(a)    The Factory resorted to trade purchase in September 1999 on the ground that it was not feasible for Ordnance Factory Ambernath to supply these cups despite the latter having assured in August 1999 to supply the entire ordered quantity of 430 tonne brass cups KF-31 within October 1999. However the price contracted with the private firm at Rs 2.39 lakh per tonne was more than double the cost of manufacture of
Rs 1.11 lakh at Ordnance Factory Ambernath.

(b)    In any case, trade procurement of 300 tonne brass cups was avoidable since the Factory actually manufactured only 91.96 million cartridge cases during 1999-2000 for which brass cups of three types supplied by Ordnance Factory Ambernath was more than sufficient. Further the firm commenced supply on 28 October 1999 and supplied only 150.22 tonne up to March 2000.

Infructuous expenditure of Rs 7.16 crore was, therefore, incurred in procuring brass cups from trade which were not at all required.

Ordnance Factory Board stated in July 2001 that trade procurement of cups was resorted to by Ammunition Factory Kirkee as they required cups from September 1999 and the supply schedule agreed to by Ordnance Factory Ambernath was from February 2000. The contention of Ordnance Factory Board is not tenable since Ordnance Factory Ambernath in August 1999 assured Ammunition Factory Kirkee to regulate supply of cups by October 1999. In any case the fact that Ammunition Factory Kirkee manufactured only 91.96 million cartridge cases during 1999-2000 for which the quantity of brass cups supplied by Ordnance Factory Ambernath was more than sufficient clearly establishes that trade procurement of cups was avoidable.

The matter was referred to the Ministry of Defence in May 2001; their reply was awaited as of December 2001.

58.    Injudicious procurement of explosive

Import of an explosive worth Rs 83.35 lakh by Ordnance Factory Chanda in 1992 before finalisation of design was injudicious. Explosive worth Rs 78.28 lakh was still unutilised.

Ordnance Factory Chanda was holding 2.348 tonne HMX/WAX (explosive) costing
Rs 78.28 lakh as of November 2001 since its procurement in June 1992. Scrutiny of relevant records revealed the following:-

(a)    Though the design and drawing of a missile submunition bomblet was yet to be finalised, Bharat Dynamics Limited, Hyderabad and Armament Research and Development Establishment, Pune had placed three orders on Ordnance Factory Chanda in October 1987 and December 1989 for supply of 32 and 4250 missile warheads and bomblets respectively.

(b)    Despite being aware that design for warheads and bomblets were yet to be developed and explosive was also to be developed indigenously, Ordnance Factory Chanda imported 2.5 tonne explosives at a cost of Rs 83.35 lakh in June 1992 and was still holding 2.348 tonne explosive valuing Rs 78.28 lakh in stock. The remaining 0.252 tonne was issued for check proof and user trial and production of limited series of bomblet warhead between March 1996 and July 2001.

(c)    Shelf life of the explosive is 15 years out of which nine years are already over. Ministry of Defence stated in November 2001 that explosives were imported to avoid long lead time required in positioning the items and delay in production after finalisation of the design drawings by the Defence Research and Development Organisation. Ministry of Defence added that the design had already been finalised by Armament Research and Development Establishment and drawing was finalised in June 2001.

The contention of Ministry of Defence is not tenable in as much as procurement of explosive before finalisation of design/drawing was not judicious.

59.    Avoidable trade procurement of empty shells

Avoidable procurement of 19979 empty shells of an ammunition from trade by Ordnance Factory Chanda resulted in an extra cash outflow of Rs 5.10 crore.

In order to meet Army’s requirement of 130 mm ammunition for 1999-2000 Ordnance Factory Board authorised Ordnance Factory Chanda in June 1999 to procure 20000 empty shells from trade. Ordnance Factory Chanda procured 19979 empty shells from a trade firm at Rs 6000 each. Scrutiny of relevant records revealed the following:-

(a)    The average unit cost of manufacturing relevant empty shells at the sister factories excluding overheads was only Rs 3448.50 against trade rate of Rs 6000 per unit. Thus procurement from trade resulted in cash outgo of Rs 5.10 crore.

(b)    Although the contract stipulated supply of 10000 shells between October 1999 and January 2000 the firm supplied 9979 empty shells between April 2000 and September 2000 and another 10000 empty shells up to March 2001. Thus, the purpose of meeting emergent requirement of 1999-2000 was not served and Ordnance Factory Chanda met their target of 1.75 lakh rounds of ammunition for 1999-2000 by obtaining empty shells from sister factories.

(c)    Ordnance Factory Chanda had procured 9979 shell out of 19979 shells by exercising option clause in October 2000 which was injudicious as the trade firm had failed to supply 10000 empty shells within the stipulated delivery schedule by January 2000 thereby defeating the purpose for which the trade action was proposed by Ordnance Factory Board in June 1999.

On being pointed out Ordnance Factory Chanda in July 2000 and December 2000 stated that they had undertaken trade purchase of empty shells only under the directives of Ordnance Factory Board.

Ordnance Factory Board attributed in October 2001 the inability of the firm to supply the stores within the stipulated delivery schedule to failure of inspector in providing gauge schedule and gauge drawing to the firm and the option clause had been exercised keeping in view the increased production target for 2000-01 for the ammunition. The contention of Ordnance Factory Board on operating option clause for 2000-01 is irrelevant and defeats the purpose for which the order was actually placed in August 1999. The failure of the inspectors to supply gauge schedule and gauge drawings despite urgent requirements would also require investigation.

The matter was referred to the Ministry of Defence in July 2001; their reply was awaited as of December 2001.

60.    Avoidable import of cartridge cases

Import of three lakh cartridge cases of an ammunition valuing Rs 10.69 crore by Ordnance Factory Khamaria was avoidable since the delivery schedules of these stores by the firms were such that the import did not meet the intended purpose.

Ordnance Factory Khamaria procured three lakh cartridge cases of 30 mm BMP-II ammunition against its import order of July 1999 at a total cost of Rs 10.69 crore. The scrutiny of relevant records revealed the following :-

(a)    Although the Ordnance Factory Board had dropped the proposal of Ordnance Factory Khamaria in May 1999 for import of cartridge cases on the ground that the sister factories would be able to meet the requirement of cartridge cases they sent the case to Ministry of Defence in June 1999 to meet the enhanced target of ammunition during post Kargil scenario.

(b)    As per the import order of July 1999, three lakh cartridge cases were to be supplied by the foreign firm by November 1999. Having failed to complete the supply within the schedule the vendor suggested for cancellation of the order. However, Ordnance Factory Khamaria extended the delivery date to March 2000. The cartridge cases were actually received from August 2000 to November 2000. In the meantime the factory managed its requirement of 1999-2000 otherwise. Infact the production exceeded the targets indicating that the import of three lakh cartridge cases was unnecessary.

(c)    Though the samples taken from four lots failed in salt spray test conducted by Controllerate of Quality Assurance (Metal) Ishapore which could reduce shelf life of ammunition, the Senior Quality Assurance Officer (Armaments) Khamaria cleared three lots for further processing with reduced shelf life. Strangely, Ordnance Factory Khamaria had utilised three lots in the assembly without waiting for the outcome of the test conducted by Controllerate of Quality Assurance (Metal) Ishapore. Replated sample of fresh lot found low in plating thickness were yet (August 2001) to be tested. The firm had agreed to bear the cost of replating.

(d)    Besides four lots rejected by the Controllerate of Quality Assurance (Metals) Ishapore, another two lots comprising 20160 empty cartridge cases costing Rs 73.79 lakh were found unfit for further use by Senior Quality Assurance Establishment (Armament) Khamaria and Ordnance Factory Khamaria approached the foreign firm for free replacement of these lots in February 2001.

Ordnance Factory Board while accepting that the production during 1999-2000 was met by taking cartridge cases from sister factories stated that imported cartridge cases were utilised for meeting production target of 2000-01. The fact remains that the import of cartridge cases at a cost of Rs 10.69 crore was unnecessary.

The matter was referred to the Ministry of Defence in July 2001: their reply was awaited as of December 2001.

Machinery

61.    Injudicious procurement of Machine

Procurement of whirling machine costing Rs 7.82 crore by Vehicle Factory Jabalpur in October 1999 was injudicious since the volume of demand for crank shaft did not justify provisioning.

In order to replace existing crank shaft turning machine at Vehicle Factory Jabalpur which had outlived its economic life, a whirling machine was procured from a foreign firm at a cost of Rs 7.82 crore in October 1999 against its order of April 1997. The procurement was made on the ground that the factory was required to supply crank shaft for overhaul of engines at the Army base workshops besides meeting the requirement of Shaktiman, Nissan and futuristic new generation vehicles. Audit scrutiny revealed that the decision was not judicious on the following grounds.

(i)    The requirement of crank shaft for overhaul was only 750-1000 per annum which constituted only one month’s machining capacity of the whirling machine. For rest of the 11 months it would have to be kept idle.

(ii)    Shaktiman Vehicles manufactured at Vehicle Factory Jabalpur were being fitted with Hino Engines supplied by Ashok Leyland. The crank shafts for future generation vehicles were to be supplied by Ashok Leyland and Telco in terms of Transfer of Technology agreements concluded by Ordnance Factory Board in August/September 1998 with the indigenous firms.

(iii)    Furthermore the peak production of 3246 shaktiman crankshafts was achieved by Vehicle Factory Jabalpur in 1995-96 with the old machines. The action of the factory to go in for fresh procurement of whirling machine was injudicious.

(iv)    The new machine was used for machining of 55 crank shaft per month during 1999-2000 to 2000-2001 against its capacity of machining1000 crank shafts per month.

On being pointed out Vehicle Factory Jabalpur stated in December 2000 that the machine was capable of machining any type of crank shafts for futuristic vehicles. This is not tenable since procurement of a costly machine for producing crank shafts of vehicles which were yet to be decided was injudicious.

Ordnance Factory Board stated in October 2001 that the procurement of whirling machine was justified during 1996-97 based on the requirement of crankshafts not only for the overhaul of engine at Army Base Workshop but also to meet the requirement of spare engines and the engines for new generation vehicles besides to maintain the War Reserve capacity for manufacturing crankshafts. The contention of Ordnance Factory Board is not tenable since (i) the requirement of spare engines is miniscule and could have been managed with the existing machines, (ii) engines for new generation vehicles, which were undecided did not justify provisioning of new machines. Moreover Transfer of Technology agreement of August/September 1998 for futuristic vehicle does not include engines. Ordnance Factory Board also added that there was no indication or information from Army that requirement of crankshafts for Shaktiman and Nissan engines will come down drastically and it was after receipt of machine that Army decided to cannibalise the engines of vehicles which are de-inducted. This contention is not tenable since Ordnance Factory Board was exploring the possibility of utilising the machine for jobs of civil sector and leasing the machine to civil sector.

The matter was referred to the Ministry of Defence in June 2001; their reply was awaited as of December 2001.

Miscellaneous

62.    Costly machine lying idle

A machine procured at a cost of Rs 85.66 lakh is lying uncommissioned and consequently unutilised despite incurring an additional expenditure of Rs 70.85 lakh on its conversion for alternative use resulting in blocking of Government funds of Rs 1.57 crore.

Ordnance Factory Varangaon procured a tracer loading machine to produce 0.50" RMG tracer in March 1985 at a cost of Rs 85.66 lakh. However, the machine could not be commissioned till 1997, as it was incapable of filling tracing composition in the required quantity. In the meantime, the requirement of 0.50" RMG tracer ceased to exist and Ordnance Factory Board decided (July 1998) to convert the existing machine to suit the requirement of 5.56 mm ammunition project. Accordingly a contract was concluded in March 1999 with a foreign firm for supply of conversion equipment for conversion of tracer filling machine of 0.50" RMG to 5.56 mm tracer at a cost of Rs 70.85 lakh. Although the delivery schedule stipulated supply within 10 months and erection and commissioning within another two months, the conversion equipment was received and trials commenced only in October 2000. However, the machine could not be commissioned successfully even for alternative purpose of tracer filling of 5.56mm ammunition.

Ministry of Defence while accepting the facts stated in November 2001 that machine was still under commissioning since extended trials are necessary to achieve flexibility in speed and charge mass vis-a-vis that specified in purchase contract. Thus, as of November 2001 no value for money could be derived from an expenditure of Rs 1.57 crore incurred on procurement/conversion of tracer filling machine.

63.    Costly welding system lying idle

A robotic welding system procured in March 1993 from a firm of doubtful capability at a cost of Rs 2.61 crore has been under break down and lying unutilized since December 1996.

A robotic welding system procured in March 1993 at a cost of Rs 2.61 crore including erection charges from a private firm of Chennai for high quality automatic welding of hull assembly of Infantry Combat Vehicle (ICV) has been lying idle at Ordnance Factory Medak since December 1996. Audit scrutiny of relevant records revealed that:

(a)    After commissioning of the system in March 1994, the firm stated in September 1995 that fully automatic welding could not be possible due to excessive part-to-part variations in profiles of the hulls. The system could therefore be utilized for welding of only 71 hulls of ICVs up to December 1996. Thereafter the system failed prematurely and was lying idle requiring modification. Ordnance Factory Medak has been managing welding of hulls with the available 51 welding machines.

(b)    Order was placed on the firm in December 1991 even though a similar system procured from the firm in June 1990 for Heavy Vehicle Factory Avadi had not been commissioned. In fact that system has not yet been rectified.

Ordnance Factory Board stated in August 2001 that since indigenous armour plates in use since 1996 need pre-heating which facility is not provided in Robotic welding machine, it could not be utilised. Ordnance Factory Board did not clarify as to whether machine would be utilised for welding of hull assembly after modification. Thus, the decision to place order for a robotic welding system on a firm with unproven credentials led to infructuous expenditure of Rs 2.16 crore.

The matter was referred to the Ministry of Defence in June 2001; their reply was awaited as of December 2001.

64.    Follow up on Audit Reports

The Ministry of Defence failed to submit remedial Action Taken Notes on 20 Audit Paragraphs as of December 2001.

With a view to ensuring enforcement of accountability of the executive in respect of all the issues dealt with in various Audit Reports, the Public Accounts Committee desired that Action Taken Notes on all paragraphs pertaining to the Audit Reports for the year ended 31 March 1996 onwards be submitted to them duly vetted by Audit within four months from the date of laying of the Reports in Parliament.

Review of outstanding Action Taken Notes relating to Ordnance Factory Board as of December 2001 revealed that the Ministry had not submitted Action Taken Notes in respect of 20 paragraphs included in the Audit Reports for the year ended March 2000 as per Annexure-III.

65.    Response of the ministries/departments to Draft Audit Paragraphs

On the recommendations of the Public Accounts Committee, Ministry of Finance (Department of Expenditure) issued directions to all ministries in June 1960 (No. F-32(9) EG-1/60 dt.3 June 1960) to send their response to the Draft Audit Paragraphs proposed for inclusion in the Report of the Comptroller and Auditor General of India within six weeks.

The Draft Paragraphs are always forwarded by the respective Audit Offices to the Secretaries of the concerned ministries/departments through Demi Official letters drawing their attention to the audit findings and requesting them to send their response within six weeks. It was brought to their personal notice that since the issues were likely to be included in the Audit Report of the Comptroller and Auditor General of India, which are placed before Parliament, it would be desirable to include their comments in the matter.

Draft paragraphs proposed for inclusion in the Ordnance Factory Section of the Report of the Comptroller and Auditor General of India for the year ended March 2001: Union Government (Defence Services), Army and Ordnance Factories: No. 7 of 2002 were forwarded to the Secretary, Department of Defence Production and Supplies, Ministry of Defence between March 2001 and December 2001 through Demi Official letters.

The Secretary Department of Defence Production and Supplies did not send replies to 18 Draft Paragraphs out of 25 Paragraphs in compliance to above instructions of the Ministry of Finance issued at the instance of the Public Accounts Committee. Thus, the response of the Secretary of the Ministry could not be included in them.

New Delhi
Dated: 13th March 2002

(SUDHA RAJAGOPALAN)
Director General of Audit Defence Services

Countersigned

New Delhi
Dated: 13th March 2002

(V.K. SHUNGLU )
Comptroller and Auditor General of India