"This is one area where we don't want to be No. 1," said Modi who was speaking after inaugurating the 10th edition of the Aero India show in Bengaluru.
The show has attracted around 250 Indian and 300 foreign firms, which are showcasing their technologies and capabilities.
Pointing out that India employed a mere 2 lakh people with a mere $7 billion in defence production, Modi said that 60 per cent of India's defence equipment was being imported. "Even if we reduce this by 20-25 per cent, it will create 1.2 lakh skilled jobs."
Promising that his government would encourage domestic manufacturing, Modi urged foreign defence firms to be strategic partners rather then mere equipment sellers.
Assuring them of a level playing field, he pointed out that his government had enhanced FDI in the sector to 49 per cent.
He also asked the foreign firms to make India a part of their global supply chain and leverage the country for exports.
Saying that public sector units in defence had to improve their performance and be more accountable, he also announced that a technology development fund would be launched.
However, he didn't specify the corpus of this new fund and what it would invest in. Asking the private sector to play a greater role in improving India's defence preparedness, he promised to ease doing business.
Modi also said up to 80 per cent funding support would be provided from the government for developing prototypes in the country.
Also present during the occassion were Union defence minister Manohar Parrikar, Chief Minister of Karnataka S. Siddaramiah and several of Modi's cabinet colleagues.
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