NEW DELHI - India boosted defence spending by 12 per cent in 2014-15 over the previous year in a budget presented on Thursday and further opened the domestic weapons industry to foreign investment to help rebuild the military and narrow the gap with China.
India has been the world's top arms buyer for the last three years, trying to replace an ageing Soviet-era military with modern weapons as a deterrent to a rising China, with which it fought a war more than half a century ago.
Finance Minister Arun Jaitley set the military budget at 2.29 trillion Indian rupees ($38.35 billion) for 2014-15, 50 billion rupees more than what the previous government agreed in an interim budget earlier this year.
Defence expenditure for 2013/14 was kept at 2.04 trillion rupees.
"Modernisation of the armed forces is critical to enable them to play their role effectively in the defence of India's strategic interests," he said to the thumping of desks in the lower house of parliament, where he presented the new government's first budget.
Jaitley's Bharatiya Janata Party has long called for a militarily-strong India to counter potential threats from both China and Pakistan and said it would speed up the pace of arms purchases for the military, the world's third largest.
Even at the elevated spending, India's military budget is still less than a third of China's $145 billion expenditure last year estimated by the Pentagon in its report to the US Congress this month.
New Delhi worries that China is building roads and other infrastructure along the disputed land border as well as bolstering its naval presence in the Indian Ocean that it considers its zone of influence.
The rise in India's military spending comes as Western governments are rushing to visit the new administration in New Delhi in the hope of landing multi-billion deals.
Politicians from France and Britain have held talks in New Delhi, while the United States, which has built close military ties, is also pushing for faster decisions on arms contracts.