"We're trying to simplify procedures, create a level-playing field but still there are many cases of zero participation in tenders," said G. Mohan Kumar, the defense production secretary leading the localisation drive.
The military declined to comment, referring queries to the Defense Ministry, which controls procurement.
India gets 70 percent of its arms from abroad. For decades, it has bought off-the-shelf equipment mainly from Russia, which offered to assemble some weaponry locally but little in the way of technology transfers.
Modi has vowed to change that by ringfencing $100 billion worth of defense deals for domestic companies over the next decade under which they can build on their own or with foreign partners.
Last year the government asked several Indian companies to show interest in an estimated $1.7 billion deal to replace 1960s-era Swedish air defense guns, but only one said it could meet the requirements, said one of the Defense Ministry officials. He declined to identify the company.
The head of one firm which told the government it was not interested in the project said the military laid down "impossible" requirements by insisting on technology that only foreign manufacturers had. He declined to be identified because of the sensitivity of defense issues.
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In November, the government put an estimated $2 billion proposal to replace its ageing fleet of Avro cargo planes on ice after the tender attracted only one bidder, a partnership between Europe's Airbus Group and India's Tata Sons.
"Even if there is an alternative better solution, as per current practice the requirements cannot be changed, or if they are changed it is questioned," said M.V. Kotwal, head of defense business at infrastructure group Larsen and Toubro. "The flexibility is not there."
Over the past 18 months, 41 requests for expressions of interest for naval projects alone fell through because of problems relating to manufacturing requirements, the Defense Ministry official added.
Trying to move projects along, Modi's government in February approved an $8 billion proposal to build warships in India that had been awaiting cabinet sign-off since 2012.
It has also ordered an accelerated local program to build six diesel-electric submarines, in addition to six similar vessels that French firm DCNS is assembling in Mumbai port to replace India's ageing underwater fleet.
A Defense Ministry committee submitted a report last month identifying five private and state-run shipyards where the submarines could be built with a foreign partner. It will now invite expressions of interest for the $8.5 billion project.
Experts said one problem is that some military officers eye technology only available in the west, without understanding what Indian firms can produce.
"The armed forces are reluctant to accept hardware that doesn't have a record in operational conditions. Indian companies have no track record," said Bharat Karnad at the Center for Policy Research in New Delhi.
Retired vice admiral Premvir Das added that to expect Indian companies to manufacture major defense platforms in the foreseeable future is to "live in a dreamland".