A hike of about 10 per cent in the annual defence budget this year notwithstanding, India's defence planning has been hit by inflation hovering at 11 per cent, Army chief General Deepak Kapoor said on Thursday.

"Though defence budget for 2008-09 is 10 per cent more than previous year's allocation, we can very well gauge what impact inflation hovering at 11 per cent could have on defence planning," Kapoor said, addressing the Institute of Defence Studies and Analyses members in New Delhi.

The general said an analysis had revealed that for the first time since India-China war of 1962, defence budget of the country had fallen below two per cent of gross domestic product.

"There has been a persistent decline over the years from 3.38 per cent of GDP in 1987-88 to 1.98 per cent today - much below the global average," the Army chief said.

Stating that like any other developing nation, there was always competition for the financial pie, he said the nation had to balance its budget for its security and developmental needs - the classical 'guns versus butter' debate.                                            

To develop desired force capabilities, the military planner was, therefore, confronted with the dilemma of improving capital versus revenue ratio, Kapoor said, pointing out that it required simultaneous rightsizing with induction of state-of-the-art weapons and equipment.

"To meet the two objectives and enhance the assurance of requisite capabilities, we are focused on indigenisation and collaborative approach, but without compromising on our operational capabilities," he added.

Stating that there were various components of the defence budget, the Army chief said the component for modernisation of armed forces was very small.

Lamenting at delays in procurement of equipment needed by armed forces for maintaining their operational capabilities, he said there were problems in procedures due to which deals too longer time to fructify.

"By the time procurement is done, the financial year gets over and therefore the unspent portion of the budget lapses. In certain other countries, there are methodologies followed for procurement such as carrying forward unspent money in the next budget or leaving a percent of the budget to be carried over," he said.

Sounding optimistic of procurement procedures improving with time, Kapoor said the aim should be to reduce delays when appropriate sanctions for a deal have to be obtained.

"I am hopeful the procedures will improve in due course of time, which will assist us in ensuring that whatever is allocated for modernisation in a particular year gets consumed," he said.

• Inflation, the silent killer!