It, however, said the country's relations with China were of "crucial importance" and New Delhi's policy was to engage Beijing on the principles of "mutual trust and respect and sensitivity for each other".
"India is conscious and watchful of the implications of China's evolving military profile in the immediate and extended neighbourhood," the Defence Ministry said in its Annual Report for 2010-11, which was tabled in Parliament today.
The remarks come at a time when China is building and developing military capabilities in its areas adjoining India and also in places under Islamabad's control such as the Pakistan-Occupied Kashmir. It is also reportedly building its military assets in countries like Myanmar, Sri Lanka and Pakistan.
China with an official defence budget of more than USD 91 billion, almost three times the Indian defence budget of around USD 35 billion, has built a network of rail lines and more than 58,000 km of roads in the Tibet Autonomous Region (TAR) along with nuclear missile silos.
Five airfields in TAR have become operational and include Gongar, Linchi, Pangta, Hoping and Gar Gunsa.
In response to the enhanced Chinese military activity, India has also started building its capabilities to meet the security challenges.
Recently, Defence Minister A K Antony had said the government was taking "necessary steps" in consonance with its national security concerns.
"Military capacity enhancement and modernisation of armed forces is a dynamic process, which takes into account the cumulative challenges envisaged by the nation," he had stated.
The steps include the raising of two Mountain Divisions of the Army in the northeast, deployment of four squadrons of its frontline Su-30 MKI fighters. Besides, it is also considering deployment of Ultra Light Howitzers (ULHs) and light tanks in the territories along the LAC.
Several new and old air fields have been activated and new roads constructed to enable a quicker movement of troops and equipment in the region.