Small state in India defended by two vessels, cavalry on the borders capturing it (7,4)

'small state' is the definition.
(city state)

'vessels cavalry on the borders capturing it' is the wordplay.
'vessels' becomes 'vatican' (I can't justify this - if you can you should give a lot more credence to this answer).
'on the borders' says to hollow out the word (remove centre letters) (the edge/border letters).
'capturing' indicates putting letters inside.
'cavalry' with its centre taken out is 'cy'.
'cy' placed around 'it' is 'city'.
'vatican'+'city'='VATICAN CITY'

'in india defended by two' acts as a link.
This may not be correct. Some or all of it may belong to another bit of the clue.

Can you help me to learn more?