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Last Updated: Thursday, 8 July 2004, 12:29 GMT 13:29 UK
India's ever-increasing defence budget
By Alastair Lawson
BBC News Online South Asia desk

BAE Hawk
India is buying 66 Hawk jets from the UK

India's new government is committed to improving the lot of the country's poor. It is also engaged in peace talks with rival Pakistan. So why, in its first budget, has it announced it will increase military spending by almost 18% in the coming financial year?

On closer analysis the decision of Finance Minister P Chidambaram to increase defence spending so much is not so surprising.

An inflation rate of around 6%, a decline in value of the Indian rupee and defence deals inherited from the previous government are all factors that Mr Chidambaram had to bear in mind.

"In real terms this increase is not as large as it may sound to the outside world," defence analyst Rahul Bedi told BBC News Online.

"Although the Indian economy may be growing at a healthy rate, the impact of inflation and the drop in value of the rupee mean that the increases only amount to an actual increase in spending of between 6%-7%."

Daunting bills

The list of defence deals agreed by the previous government also means that Mr Chidambaram's hands are tied. He cannot renege on them without having to pay hefty financial penalties.

That list is extensive and involves heavy spending by all three services.

All three military services have big bills in the offing

The Indian air force has agreed to buy 126 Mirage jets from France - worth $30m each - as well as 66 Hawk trainer fighter jets from the UK.

The navy has agreed to buy the Russian aircraft carrier, the Admiral Gorshkov, for a nominal fee.

But it requires a $670m refit and will eventually have between 18 to 20 Mig 29 fighters which will cost in excess of $1bn.

The navy has also agreed to buy six submarines from France at a cost of $700m.

The army faces an equally daunting set of bills. It wants to standardise its artillery capability and is currently at an advanced state of negotiations with South Africa, Israel and Sweden.

The whole process will involve the purchase of between 1,200 to 1,500 howitzers and the final bill is expected to be in the region of $3bn.

"For many of these deals, a down payment has to be made," says Rahul Bedi. "It is almost as if the Congress government is having to pay death duties left to it by the outgoing coalition."

Mr Bedi says that India's already stretched defence purse strings are likely to be under further pressure because of the huge costs in maintaining its nuclear weapons capability and because of an agreement made recently with Israel to buy an "Eye in the Sky" early warning system, the Phalcon.

While India's spiralling defence budget may raise eyebrows around the world, domestically the government is on firmer ground.

"The Congress led government is eager to display its resoluteness in defending the state and keep the influential armed forces happy," says the BBC's South Asia defence analyst Mahmud Ali.

"It may also have wanted to counter allegations made by right-wing parties that it would 'go soft' on national security affairs."

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