NEW DELHI ­ On Friday (28th February) India hiked its military spending by 21 percent to 10.2 billion dollars in its federal budget for fiscal year to March 1998.

The increase was 1.8 billion dollars over the previous year's allocation. But experts said in real terms the increase would be eaten up by inflation and higher wages.

Finance Minister Palaniappan Chidambaram promised to grant more funds to the defence sector if necessary but said he was holding back one billion dollars of the increase to pay for higher military salaries recommended by a government wage panel.

Chidambaram said: "I am providing . . . a clear promise that any additional requirement of defence for capital expenditure will be adequately provided."

"In the past, revenue expenditure of the defence services had been routinely under provided." Analysts said the allocation held back to pay for increased military salaries was a blow.

"If one makes allowance for the pay hike as recommended then the actual increase works out to be 8.48 percent and not 21 percent," said C. Uday Bhaskar, deputy director of the Institute for Defence Studies and Analyses (IDSA).

Sanjeev Verma, a senior economist, added: "If we take seven percent inflation into account, then the defence budget does not offer what appears on the surface."

Chidambaram gave the largest share, 5.48 billion dollars, to India's army, 1.35 billion dollars to the air force while the navy received 645 million dollars.

Defence ordinance factories, which are in the final stage of making an array guided missiles, were given 124 million dollars while the rest went on pension payments and other items.

In the previous budget, the finance minister increased defence spending by 270 million dollars, marking one of the lowest increases in decades.

India spent 2.36 per cent of its GDP on defence in the last fiscal year. - AFP