Signalling that current modernisation drive in the armed forces would continue, the government on Monday hiked the country's defence Budget to Rs 83,000 crores (Rs 830 billion) for the year 2005-06 from Rs 77,000 crores (Rs 770 billion), an increase of 7.8 per cent.

The highlight of this year's defence spending would be the steep allocation of Rs 34,472 crores (Rs 344.72 billion) made for capital outlay.

Though in real terms it marked only an increase of about Rs 1,000 crores (Rs 10 billion) over last year's arms acquisition funding of Rs 33,472 crores (Rs 334.72 billion), in actual terms it amounts to fresh allocation as the ministry for the first time in five years has been able to spend all the allocated funds under the head last year.

With a huge allocation on capital outlay, Defence Minister Pranab Mukherjee can now go ahead with major arms acquisition programmes like buying killer-hunter Scorpene Submarines from France, Long Range Smerch rocket system from Russia and low-level transportable radars, all of which have been pending for more than a year with the Cabinet Committee on security.

The capital outlay funding in fact almost constitutes 41.4 per cent of the total defence budget.