Following the news that the Indian Ministry of Defence is removing the offset requirements for inter-government agreement (IGA), government-to-government, and ab initio single vendor contracts, questions must be asked as to how the indigenization of defense procurement is going to proceed.
With the MOD having decided to remove these offset clauses, Indian Minister of Defence Rajnath Singh added on Twitter that some categories of contracts (Buy Indian-IDDM), Make I, Make II, Production Agency in Design & Development, OFB/DPSU and SP Model) would be exclusively for Indian vendors.
Though the move to remove the offset requirements in certain categories makes sense, given that this has only resulted in increased costs for acquisition according to the Comptroller Auditor General, the underlying reason for offsets, indigenization, would have to take a back seat. Even in cases where major portions of the work are undertaken in India, such as the Su-30MKI, or T-90 tank, critical systems are imported. In the case of the latter, the engine and transmission systems are imported.
From a pragmatic standpoint this decision makes sense and allows necessary acquisitions to occur, but the inability to indigenize key subsystems thus far will be causing some concern. With India seeking to become an exporter in the aerospace and defense sector, it will prove vital for Indian companies to master domestic development and production of engines, sensors and other subsystems vital to the operation of these systems. It is for this reason that offsets with complete system transfer of technology are treated with greater multipliers than simple indigenization of subcomponents.
However, considering some of the major programs in the pipeline for India, the avenue chosen for procurement will greatly affect domestic industrial and technological development. Recent domestic successes include the production of the 300th Advanced Light Helicopter Dhruv (ALH-Druv) by HAL and the successful test of the BrahMos missile, the latter of which had a successful test on the 30th of September 2020, with indigenous booster and airframe section, and other domestic subsystems. Borne of an international joint venture with Russia, the increasing local input provides a good example of successful indigenization efforts.