Antony, who addressed the two-day Combined Commanders Conference that began here, said there were multiplicity of threats.
"Our geographical situation and the compulsions of history and geography pose challenges that are unique for any country. At the forefront of these challenging situations are those emanating from neighbours who continue to dwell in the past and are keen to foment threats to our national integrity," he said.
"A multiplicity of threats poses challenges to us. Events in recent months indicate that the proxy war in Jammu and Kashmir continues unabated. While required measures have been taken to prevent the recurrence of acts of terror like 26/11 attacks on Mumbai; intelligence inputs demand that we cannot afford to drop our guard," he added.
Noting that India wanted to develop friendly relations with China, Antony, however, said the country could not lose sight of China's increasing military and physical infrastructure along the borders.
He, though, sounded a word of caution that the two largest nations of the region had "equal stake" in maintaining peace and ensuring development through which both could benefit and prosper by taking the trading partnership to even further heights.
"We want to develop friendly relations with China...However, we cannot lose sight of the fact that China has been improving its military and physical infrastructure. In fact, there has been an increasing assertiveness on the part of China," he said.
Antony said India was taking all necessary steps to upgrade capabilities, but noted that these were "never linked" to countering any particular nation.
The Defence Minister said the internal security situation in Jammu and Kashmir, North East and Naxalism needed the government's undivided attention, adding that the Maoists' activities that have grown in the recent times needed to be addressed urgently.
Favouring faster modernisation process for the defence forces, Antony said, "We have to keep abreast with the military modernisation drive in our neighbourbood and keep pace with it to ensure that our nation continues to hold the edge."
He said the varying security, political and economic dynamics of the region and the complex interplay of various forces, both internal and external, demanded that India remained vigilant and well-equipped at all times.
Noting that the Defence Ministry had decided to review the Defence Procurement Procedure annually, Antony said the government would provide all support to modernisation of the armed forces, but the push was towards indigenisation.
"In order to be meaningful and long lasting, the process of modernisation has to rest on two pillars of indigenisation and self reliance to the maximum possible extent," he said.
Pointing out that modernisation was not a panacea for all ills, the Defence Minister said it had to be matched by high morale of the troops.
Antony asked the Army, Navy and Air Force commanders to lead the troops by example and adopt much more humanitarian approach and outlook in dealing with personnel below the officer rank.
"Your personal conduct and behaviour must set the tone to be followed down the line," he told the commanders.
