Building domestic military industry is very costly and takes tremendous political will. After all, we are talking billions and billions of dollars having to be invested after billions and billions having already been spent on foreign weapons. Being a democratic country, can your politicians take the pressure and follow it through?
Being a democracy or not has nothing to do with it. In my post I gave the example of the USA which built a massive military industrial complex during and after the world wars, and the USA was very much a democracy. It only helps that the people on top are directly answerable to the people.
What hinders India is its confounded bureaucracy - the bloated, inefficient, painfully slow bureaucratic machine that holds up progress in all fields. Once that issue is addressed, most of India's problems will vanish. Not just regarding military affairs, but overall development.
Also, note that with a customer the size of India's armed forces, the return on investment will always be high. That is, no matter how many billions we invest to build a defence industry, we will save a lot more when they deliver, due to the economy of scale. So while it may not be economically viable for Sri Lanka or Australia to invest in a large MIC, that is not true for India.
And building a good MIC is not all that expensive a proposition as you make it out to be. I'm not saying that India has to establish the likes of a boeing or a Lockheed-martin or Raytheon within the next decade. It can be a gradual process, rising up in the value chain. We have made a start toward that by manufacturing all large volume purchases ourselves, through ToT and offsets. If we can keep increasing the domestic content of our hardware, and decreasing imports, in a decade or two we would have achieved some form of self sufficiency. Being completely self reliant will take a long time, and in fact may not even be that important or viable.