The navy will be left with merely six to seven submarines, including India's first and only nuclear-armed ballistic missile submarine INS Arihant, as it begins phasing out the Russian Kilo class and German HDW Type 209 submarines next year.
The report warned India had "never before been poised in such a vulnerable situation" and the undersea force levels were "at a highly precarious state".
The navy currently operates 14 submarines, including a nuclear-powered attack submarine leased from Russia. However, the "viable strength" of its submarine arm is much less, factoring in the operational availability of the boats.
In contrast, China operates close to 45 submarines, including two ballistic missile submarines. "China may plan to construct 15 additional Yuan-class attack submarines, based on German diesel engine purchases," the report said. It said the Yuan-class boats could be equipped with air-independent propulsion systems to recharge their batteries without having to surface for more than three weeks, a capability currently unavailable with the Indian Navy.
The size of India's submarine fleet will roughly be the same as that of the Pakistani Navy in two years. "As this critical (undersea) capability is eroded, there is an inverse increase in both capability and strength of the Chinese and Pakistani navies," the report stated.
Six Scorpene submarines are currently being built at the Mazagon Dock Ltd in Mumbai with technology from French firm DCNS under a Rs. 23,562-crore project codenamed P-75.
But the first of these boats will not be ready before 2016-17, though it should have been commissioned into the navy last year. The report said the delay had "set off a capability gap that will widen" in the coming years.