With India still overwhelmingly dependent on foreign military hardware and software, the government is all set to clear a new set of guidelines for creation of joint ventures between defence PSUs and private companies as a step towards bolstering the domestic defence industrial base (DIB).

Defence ministry sources say the new policy on JVs will be taken up for approval by the Union Cabinet on Thursday, a few months after the government had put "on hold" the joint venture between defence shipyard Mazagon Dock Ltd (MDL) and private shipyard Pipavav after receiving a barrage of complaints by other rival private shipyards.

"The new policy will boost private sector entrance in the defence arena. It is also needed since there over 40 offset contracts (with global armament firms who have bagged or about to clinch Indian defence deals) worth over Rs 50,000 crore being negotiated," said a source.

"Then, around $20 billion MMRCA (medium multi-role combat aircraft) project will itself have 50% offsets...the potential is huge," he added.

The announcement of the MDL-Pipavav JV had led to a lot of heartburn among other private shipyards like L&T and ABG, which had complained of arbitrary decision-making by MDL in selecting Pipavav.

With the Navy having 46 warships on order, and several more in the pipeline, private players are jostling with each other to grab both Indian as well as foreign warship-building contracts.

MDL is the largest among the four defence shipyards, with an order book of around Rs 1,00,000 crore, including the Rs 23,562 crore project for six Scorpene submarines and the Rs 41,007 crore one for seven guided-missile destroyers.

Kolkata-based Garden Reach Shipbuilders and Engineers (GRSE), Goa Shipyard Ltd (GSL) and Hindustan Shipyard Ltd (HSL) at Visakhapatnam also have large order books.

But the capacity of the four shipyards is limited, with a big demand-supply gap, which has prompted the government to go in for public-private partnerships to meet timelines for ship-building.

The government has also come out with a new Defence Production Policy to progressively reduce India's strategically-vulnerable dependence on foreign military imports by bolstering indigenous R&D and private sector participation in a major way.

The defence sector was opened up in 2001-02 to 100% private investment, with up to 26% FDI, but the results so far have not been very encouraging. The abysmal performance of DRDO, eight defence PSUs and 39 ordnance factories has meant India, which fancies itself as an emerging superpower, still imports over 70% of its military requirements.