Sitharaman, 55, India's first full-time woman defence minister, took charge of the key ministry in the presence of her predecessor Arun Jaitley. Indira Gandhi, as prime minister, had also held the portfolio.
A priest conducted prayers in the defence minister's chamber before Sitharaman assumed charge. Her parents were present on the occasion.
"My priority will definitely be armed forces' preparedness. It is important that Indian armed forces receive all attention in terms of giving them every necessary endowment and equipment," Sitharaman, who was commerce minister earlier, told reporters.
She said resolving long-pending issues in consultation with Prime Minister Narendra Modi and the Union Cabinet and ensuring effective implementation of the 'Make in India' initiative would also be a focus area.
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"We will ensure that it's given full play for defence production," she said.
They should remain absolutely sure that their interests will be protected, Sitharaman said. Providing the soldiers with the best equipment available would be another priority.
Sitharaman has now become member of the crucial Cabinet Committee on Security -- the members include the prime minister, home minister, external affairs minister and the finance minister.
As defence minister, Sitharaman faces several challenges, including strengthening combat capabilities of the Army, Navy and the Air Force due to the changing regional security matrix and geo-political dynamics.
The government has been focusing on domestic defence production and Sitharaman will also have to carry forward a number of big-ticket reform initiatives, including implementing the ambitious "strategic partnership" model with several countries like the United States and Russia.
Under the new model, select Indian private firms will be roped in to build military platforms like submarines and fighter jets in India in partnership with foreign defence majors.
Finance Minister Jaitley was handling the defence ministry after Manohar Parrikar quit to become the Goa's chief minister in March.
Jaitley had said he was going to Japan as there were logistical issues for Sitharaman to travel to Japan. Officials had said Sitharaman would take charge of the ministry after Jaitley returned from Japan.
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