While India's defence budget for fiscal 2008-09 has been hiked by only five per cent in real terms to Rs 105,000 crore ($26.4 billion), China's People's Liberation Army has been given a 17.6 per cent increase in planned defence expenditure to Yuan 417.77 billion (58.79 billion). China's defence expenditure has grown at between 12 and 15 per cent annually in real terms over the last decade.

Chinese analysts have sought to pass off the rather steep hike in the defence outlay as having been "caused by the sharp increase in the wages, living expenses and pensions of 2.3 million-strong PLA officers, civilian personnel, soldiers and army retirees". However, the world is sceptical. Defence analysts look at the spectacular anti-satellite test successfully conducted by China in January 2007, recent pictures of an aircraft carrier under construction, the acquisition of SU-30 fighter-bombers and air-to-air refuelling capability, the drive towards acquiring re-entry vehicle technology to equip China's ICBMs with MIRVs [external links] (Multiple Independently-targeted Re-entry Vehicle), and a growing footprint in the South China Sea. They cannot help wonder whether a 21^st century arms race has well and truly begun.

In the 2004 White Paper on National Defence, the Chinese government admitted that additional funds were needed for modernisation of the PLA, even though these were classified as 'moderate'. In the 2006 paper this reason has been mentioned only in passing. The allocation of additional funds for force re-structuring and a qualitative increase in the levels of training is emphasised in both White Papers, as also rising inflation as a cause of increased defence expenditure. However, nothing in the White Papers of 2004 and 2006 fully explains the double-digit inflation-adjusted growth in the annual defence expenditure. It is this lack of transparency that has fuelled speculation about an arms race.

On certain parameters, China's defence expenditure compares favourably with the other major powers. China's defence expenditure overtook that of Japan [Images] ($42 billion) and Germany [Images] ($37.5 billion) in 2007, but still lagged behind the United Kingdom ($62.38 billion) and France [Images] ($50.78 billion) whose economies are now much smaller than that of China. It is, of course a small fraction -- less than one-tenth -- of the United States' defence budget of $532.8 billion, not counting the supplementary grants sought by the Pentagon later in the year.

The United States spends almost half (48 per cent) of the total defence budget of the world. China, France, Japan and the United Kingdom each spend four to five per cent.

Complete transparency in defence spending has seldom been a strong point even among countries that take pride in being liberal democracies. Air Commodore Jasjit Singh has written, 'All countries try and protect what they consider to be crucial information about their defence capability for understandable reasons; and defence expenditures are obviously part of that information except where democratic states practice greater transparency as part of their liberal ethos, domestic obligations and public oversight, and well established procedures of accountability..."

Totalitarian regimes like the one in China also lack egalitarian accounting practices and do not have a real grip on all the details of what they actually spend.

David Shambaugh, a well known China analyst, finds China's defence budget the most difficult aspect of the country's armed forces to research. In his view, "Few areas of China's military affairs are more opaque and difficult to research than the revenue/expenditure and budget/finance domains -- but perhaps none is more important to understand." Clearly, China's estimated military expenditure is far higher than the officially published figure. In response to international calls for greater openness, one Chinese military official countered that 'transparency is a tool of the strong to be used against the weak'.

Shambaugh lists several items of expenditure that do not figure in China's list: "China's official defence budget does not appear to include all funds for (1) Chinese-made weapons and equipment production (as distinct from procurement); (2) some RDT&E (Research, Development, Test & Engineering) costs; (3) the paramilitary People's Armed Police; (4) funds for special large weapons purchases from abroad; (5) funds directly allocated to military factories under the control of the GAD and funds for defence industry conversion; and (6) military aid."

Defence analysts Ted Galen Carpenter and Justin Logan point out that greater transparency would be in China's interest: "China needs to recognise that it gains little from opacity in comparison to what it loses� Any respectable observer of the PLA knows about China's growing capabilities. We know about the Sovremenny destroyers, the Sunburn missiles and the Kilo submarines. We know about the Sukhoi 30s and the new F-10 fighter. Large-scale hardware acquisition and development is hard to hide."

China's military aims and modernisation strategy have been enunciated in the Defence White Paper of December 2006. The strategy is "�a three-step development strategy in modernising China's national defence and armed forces, in accordance with the state's overall plan to realise modernisation. The first step is to lay a solid foundation by 2010, the second is to make major progress around 2020, and the third is to basically reach the strategic goal of building informationised armed forces and being capable of winning informationised wars by the mid-21st century."

Compared with China, India's budgetary transparency is indeed noteworthy -- even though many Indian analysts are of the view that the government does not disclose sufficient details in the annually published Defence Services Estimates. Except in the last two years, the annual increase in India's defence budget has barely kept pace with inflation. India's defence budget is less than half of China's officially claimed figure and is between one-fourth and one-third of China's actual defence expenditure.

Due to China's vigorous military modernisation drive, the military gap between India and China is growing every year. With the improved logistics infrastructure in Tibet [Images], including the Gormo-Lhasa all-weather railway line, improved road axes with good laterals linking them and many new air strips, the Chinese are now capable of inducting large numbers of troops into Tibet in a time frame that is likely to unhinge Indian war plans.

India needs to invest more in improving the logistics infrastructure along the border with Tibet, in hi-tech intelligence, surveillance and reconnaissance systems for early warning and in generating land- and air-based firepower asymmetries to counter China's numerical superiority. India also needs to raise and suitably equip four to six mountain strike divisions to carry the fight into Chinese territory if it ever becomes necessary. All of these capabilities will require a large infusion of fresh capital. India's growing economy can easily sustain a 0.5 to 1 per cent hike in the defence budget over a period of three to five years, especially if the government simultaneously shows the courage to reduce wasteful subsidies.

Gurmeet Kanwal is director, Centre for Land Warfare Studies, New Delhi.