Defence Minister George Fernandes told the Press Trust of India news agency that the new policy would allow the country's arms manufacturers to export more sophisticated weapons.

The navy has completed preliminary design work for their indigenous air defence ship, a smaller version of an aircraft carrier, which is likely to sail in seven years

George Fernandes Indian Defence Minister

"We have started a drive to find export markets to achieve economies of scale for our indigenous armament industry," Mr Fernandes said.

"Several countries have evinced interest in Indian made electronic warfare systems, new rage of 5.56mm small arms, special ammunition, Advanced Light Helicopter (ALH), aircraft and warships," he said.

Exports are currently worth less than 1bn rupees (�13.4m; $20.7m), but Mr Fernandes expects them to grow to 10bn rupees by the end of this year.

The nuclear armed country has been one of the world's largest purchasers of arms, traditionally from Russia, but recently also from the United States.

Defence build-up

In January, India opened up its dilapidated defence manufacturing sector to private investment after more than 50 years of government control, as part of its broader economic liberalisation.

India is now working with countries like South Africa and Israel to develop major new weapon systems domestically.

Both countries were once on India's blacklist.

Mr Fernandes said production of an indigenous tank would soon begin at the Heavy Vehicles Factory at Avadi in southern India, while the navy had launched a project to build a submarine - and a small aircraft carrier.

"The navy has completed preliminary design work for their indigenous air defence ship, a smaller version of an aircraft carrier, which is likely to sail in seven years," he said.

Mr Fernandes added that the construction of Asia's biggest naval facility, at Karwar in the southern Indian state of Karnataka, was ahead of schedule.

The boost to the arms makers comes as tension with Pakistan remain high over the disputed Himalayan region of Jammu and Kashmir.