Rs 600 crore loss, idle factories: Defence panel flags small-arms production crisis

The Parliamentary Standing Committee on Defence has flagged weak demand, high costs and recurring quality issues, warning that idle capacity and mounting losses are undermining the viability of the country's small-arms factories despite corporatisation.The defence panel observed that between 2015-16 and 2019-20, the small-arms factories faced "little to no demand" from the armed forces for their principal products. (File photo)The Parliamentary Standing Committee on Defence has flagged poor demand, high production costs and recurring quality issues at the country's small-arms factories, warning that idle production capacity and mounting losses are undermining their viability even after corporatisation.In its latest report, the committee made a series of recommendations to the Defence Ministry, calling for institutional reforms in procurement, cost management, quality control and research and development at Advanced Weapons and Equipment India Limited (AWEIL), the defence PSU that now operates the ordnance small-arms factories.The panel observed that between 2015-16 and 2019-20, the small-arms factories faced "little to no demand" from the armed forces for their principal products.ARMY ACCOUNTED FOR 10% OF SMALL-ARM SUPPLIESThe Army accounted for just 10 per cent of total issues during this period, leaving the factories largely dependent on orders from the Ministry of Home Affairs (MHA), which were insufficient to utilise the capacity of all three factories. The panel recommended that the ministry institutionalise a multi-year, roll-on demand plan involving the Army, MHA, state police forces and AWEIL to prevent factories from being left idle after sudden drops in demand. It also called for a detailed assessment of demand patterns and whether the installed production capacity itself needs to be recalibrated.HIGH COSTS, MOUNTING LOSSESThe committee noted that high overheads had pushed up unit production costs, while issue prices were fixed below actual costs. This resulted in cumulative losses of Rs 366 crore across the three factories on 12 selected small arms between 2015-16 and 2019-20. Even after corporatisation, losses continued. AWEIL recorded losses of Rs 234 crore between FY 2023-24 and FY 2025-26, according to the report.The ministry told the panel that it was using competitive bidding and pursuing exports to reduce costs. The Committee, however, recommended benchmarking AWEIL's unit costs against comparable private defence manufacturers to narrow the cost gap.It also suggested exploring alternative revenue streams, including sporting and hunting rifles for the civilian market, non-lethal equipment and component manufacturing for private original equipment manufacturers (OEMs). The panel noted that employee benefits for AWEIL's central government staff could not be rationalised.PANEL FLAGS BARREL, FIRING AND BREECH-BLOCK DEFECTSThe committee also flagged recurring defects detected during Final Acceptance Inspection, including barrel bore chip-off, low rate of fire and faults in the breech block.It said the defects pointed to inadequate attention to Quality Improvement Notes and called for a shift from end-of-line inspection to in-process quality checks, backed by a thorough mechanism to monitor compliance.The panel also raised concerns over inventory management. The three factories held Rs 641 crore worth of stock as of March 31, 2020, equivalent to 72 per cent of their total cost of production.Work-in-progress inventory alone accounted for 56 per cent and had increased by 102 per cent between 2015 and 2020. Store holdings also exceeded the Ordnance Factory Board's 135-day limit by between 156 and 241 days.The committee recommended stronger inventory management, including cost-efficiency metrics, improved demand forecasting and effective annual stock verification.PUSH FOR MORE R&DThe committee welcomed AWEIL's new R&D plan, which targets allocating 2-3 per cent of its resources to research and development. However, it said an increased share of budgetary grants should be earmarked exclusively for R&D.It also called for a proper monitoring mechanism to ensure the timely completion of projects and enable AWEIL to meet the armed forces' emerging requirements.The report has now been tabled in both Houses of Parliament, putting the Ministry of Defence under pressure to implement structural reforms aimed at improving the viability, competitiveness and quality of India's small-arms manufacturing sector.- EndsPublished By: Prateek ChakrabortyPublished On: Aug 13, 2026 22:51 IST