the answer is to bring in private players
The same old simplistic view that is spread in India, that bringing in privat players is the solution, but it's not!
Privat players are profit driven and don't engage into projects, that might be necessary for the forces, but not profitable enough for companies and shareholders as you mentioned.
A good example for this is the Avro replacement, that under the former government was opened up to private players and that the NDA government even further opened, by taking HAL out of the tender. But the result for both governments was, that except of TATA, not a single privat player showed interest and even TATA kept complaining, that the order size wouldn't make a production line profitable. So that requirementent till date, remains stuck.
For privat players, it is easier to simply take over offset works, or production diverted to India, but not related to MoD orders, than investing money into proper R&D. That's why only very few companies so far, are fully committing themselves into the defence field.
You mentioned the Kalyani group and ATAGS. They are a prime example how it should be done, if the industry would be serious on Indian defence!
Kalyani went abroad and bought a whole gun manufacturer, including manufacturing and R&D know how. That is the base of the ATAGS, which is just a modernised varient of the older howitzer.
Mahindra did it in a similar manner, in the aviation field and took over foreign companies to gain know how. That's why they are one of the main prospects for Indian aviation and why the team up with HAL and Boeing, could have major potential.
L&T is investing in own R&D in the naval field, which takes more time to show results, but that's a good move too, just as TATAs investments for the IFV field, Adani looks promising for aviation too.
So there is no simple way and we still see far too little interest and commitment of the privat industry, especially in the aviation sector and that's why we remain reliant on PSUs like HAL and sadly ADA/DRDO. There is no either or for India, we have to improve PSUs und get the privat industry fully committed as well.