Budget cut warning for global defence groups as India opens air show

BANGALORE (AFP) - India's defence minister warned of budget cuts on Wednesday as he opened the country's air show with a sobering message for global defence groups used to years of lavish spending.

Referring to efforts to reduce the budget deficit caused by slowing economic growth and higher spending on subsidies, A.K. Antony said the government of India, the world's leading arms importer, was "passing through difficult days".

"The whole government is facing some financial problems, so we need to tighten in all areas for a better future," he said.

Having seen the defence budget cut this year, reportedly by about 100 billion rupees (S$ 2.5 billion dollars), Mr Antony appeared to be preparing the ground for painful negotiations over the upcoming budget due at the end of the month.

He stressed that essential programmes would not be affected - in particular the deal to buy 126 Rafale fighter jets from France's Dassault Aviation - but said the armed forces would have to prioritise in their spending.

"Acquisitions that are very important for operation preparedness of the armed forces immediately and in the short term will have priority," he said.

According to the Stockholm International Peace Research Institute, India received nine percent of global arms transfers from 2006 to 2010, making it the world's leading importer of weapons.

New Delhi initially budgeted about 1.93 trillion rupees (S$45 billion) for defence spending in this financial year to March, an increase of 17 percent from 2011-2012 when spending was hiked by another 12 percent.

Defence spending next year will be under pressure by new Finance Minister P. Chidambaram, who is leading the austerity drive in the government and has promised a "responsible" budget ahead of elections in 2014.

The new focus on cost-saving could have repercussions for a range of procurement contracts which are either in the final stages of negotiation or are out to tender.