China, India boost defence as crisis takes toll on West

LONDON (Reuters) - China and India sharply raised defence spending in 2009 despite the economic crisis but most European NATO members face a squeeze on defence budgets as they rein in gaping deficits, a report said on Wednesday.

The impact of the global financial crisis on defence and security spending varied across regions and countries, the International Institute for Strategic Studies thinktank said in its annual report "The Military Balance".

U.S. defence spending almost doubled under former President George W. Bush but President Barack Obama had signalled that the need to tackle a big budget deficit would require "a dramatic reprioritisation within defence spending", it said.

Obama asked Congress this week to approve a record $708 billion in defense spending for fiscal 2011 -- including a 3.4 percent increase in the Pentagon's base budget -- but said he would continue his drive to eliminate wasteful programmes.

A sharp recession had led the Russian government effectively to abandon a comprehensive military re-equipment plan due to run from 2007-15 and to replace it with a new 10-year plan starting in 2011, the report said.

"In contrast to developments in advanced economies, both India and China have maintained their recent trend of double-digit increases in defence spending," it said.

India boosted defence spending by 21 percent in 2009 after the 2008 Mumbai attacks killed 166 people, it said.

China's official 2009 budget included a 15 percent rise in defence spending to 480 billion yuan, equal to $70.3 billion at market exchange rates, the report said.

However, it said the official Chinese defence budget did not reflect the true level of resources devoted to the People's Liberation Army. It was widely believed that the official budget took no account of weapons bought overseas or research and development funding, it said.

EUROPEAN DEFENCE LIKELY TO SUFFER

Other Asian countries, such as Australia, Indonesia and Singapore, had also posted increases in defence spending, it said.

In Europe, though, many countries had seen their budget deficits rise sharply as they pumped money into the economy to try to end the recession.

"When the time comes to redress these fiscal imbalances, discretionary spending will come under considerable pressure and defence is likely to suffer, particularly in those countries facing a looming demographic shift requiring greater expenditure on pensions and healthcare," the editor of the Military Balance, James Hackett, wrote in the report.

Britain faced a challenge in reconciling its budget deficit with its large and growing future equipment plan, it said.

Among European members of NATO, only Norway and Denmark were likely to increase their defence budgets in 2010, and over the medium term most other countries would do well to increase defence spending in line with inflation or match existing budget levels, it said.

This would lead to pressure to step up pooling and multinational management of defence assets, to countries specialising in niche capabilities and to the collective procurement of critical defence equipment, it said.