The rise puts defence spending at 2.4 percent of GDP -- well below expectations of military-planners who have campaigned for sustained spending of more than three percent of GDP to speed up the ongoing revamping process.

The budget for the fiscal year starting April 1 was delivered as India and its South Asian military rival Pakistan engage in a peace process which began in January 2004 that has defused tension over disputed Kashmir.

"Keeping in mind the modernisation of our defence forces I propose to increase the allocation for defence from 830 billion rupees to 890 billion rupees," Chidambaram told parliament as he presented the budget.

India's million-plus army, the world's fourth largest, received the lion's share at 322 billion rupees (7.15 billion dollars), marking a jump of nearly 360 million dollars over last year.

The navy, which plans to build an aircraft carrier and is working on a nuclear reactor for a submarine project, received 1.49 billion dollars -- a 14.6 percent hike from its 2005-2006 spending of 1.3 billion dollars.

Pensions gobbled up 2.93 billion dollars while the budget for the airforce, which hopes to buy 126 military jets for six billion dollars in the current decade, was increased to three billion dollars from two billion dollars in the previous year.

Arms factories were alloted 77 million dollars and the remaining 5.25 billion dollars was reserved for development projects or payments of hardware bought in previous years.

"On the face the figures look impressive but politicians are playing games because the practice of annualised budgeting does not leave any room for long-term planning," said N.K. Sareen, a former airforce chief.

India is Asia's biggest arms buyer but experts warned the hike was not even enough to pay back the billions of dollars to Britain, Israel, France and Russia for hardware purchased in recent years.

"The hike is modest and marks a standstill kind of a situation and it just about caters to inflation," said Uday Bhaskar, deputy chief of the military funded Institute of Defence Studies and Analysis.

Bhaskar, a naval officer, said the 42-percent hike in capital spending also was too little to cater to the military's ambitious modernisation programme, which involves tens of billions of dollars.

Afsir Karim, one of the architects of India's modern army, discarded the hike as unpractical and said it appeared to have been kept low to appease the United States.

"The modernisation of forces should have been the first priority and we don't think this budget caters to this as most of the funds will go to pay pensions and there will be scant resources left for acquisitions," said the retired general.

"The upcoming visit by President (George W.) Bush may not have been a factor in keeping the spending below GDP's three percent but our overall interaction with the US has affected our thinking that a steep hike could leave a wrong impression in the international community," Karim said.

Bush arrives in India Wednesday on a three-day trip for talks on strategic ties which is likely to include an accord on civilian nuclear cooperation and a refurbished defence pact.

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