India raised its defense expenditure to 17 percent to modernise defense forces to keep pace with its major rival in the region, China and other traditional rivals.
India's defense spending has been increased to 1.9 trillion rupees ($40 billion, £25.43 billion) in 2012, according to the annual budget presented by the Finance Minister Pranab Mukherjee in the parliament on Friday.
Earlier, China raised its military spending by 11.2 percent to 670.3 billion yuan (£67 billion) for 2012 on 4 March.
The Indian finance minister forecast a 6.9 percent increase in the GDP for the current year which is expected to grow at a rate of 7.6 percent in 2013.
The budget did not propose any change in the corporate tax rate while increasing the service tax to 12 percent from the existing 10 percent. Thermal coal power plants are fully exempted from the import duty while the customs duty on gold is doubled.