Pakistan has increased its defense budget by 11% to 495 billion rupees ($5.8 billion) for the next financial year beginning July 1 and has allocated 117.6 billion rupees from it for creating physical assets.

In the outgoing fiscal 2010-11, the government had initially allocated 442.173 billion rupees for defense, but by the end the year, the amount was revised upward to 444.640 billion rupees.

The budget for fiscal 2011-12 came as pressure mounts on Pakistan to launch a military offensive in the strife-torn North Waziristan region, the hideouts of Taliban and Al Qaeda-linked militants.

Finance Minister Abdul Hafeez Sheikh says Pakistan is at war against terrorism, which is why the government will continue to sacrifice more for increasing the defense budget for the armed forces, to ensure the safety of 180 million people.

From the 495 billion rupees, 206.5 billion rupees have been earmarked for employee-related expenses, 128.3 billion rupees as operating expenses of the armed forces, 117.6 billion rupees for creating physical assets and 42.7 billion rupees for civil works, the minister says.

Reports from Islamabad indicate that the military and the defense ministry had sought an outlay of more than 500 billion rupees, but the figure was slashed by the finance ministry in view of a severe financial crunch and stagnant economic growth.

Defense analysts say that for Pakistan, which is in dire need of military hardware, including strategic air defense, the defense allocation will be insufficient to meet both external and internal threats. Analysts feel Pakistan needs strategic air defense to maintain deterrence, but lament that most of the defense budget is spent on salaries and maintenance with little left to purchase military hardware, which increases Pakistani’s dependence on foreign military aid.

Michael Krepon, cofounder of Stimson, and director of the South Asia and Space Security programs, tells Aviation Week that Pakistan’s defense budget is presented to the National Assembly as one line item. “Unless the budget is unpackaged, Prime Ministers and legislators cannot come to grips with its component parts.”

Internal security challenges are rising while the Pakistan Army continues to view India as its primary threat.

“Normalization of ties with India could relieve budget pressures, but this would require a reassessment of long-held beliefs,” he says.

In February, India also had increased its annual defense spending by about 11.6%, aimed at overhauling its military mainly to counter strategic threats posed by China’s rapidly expanding offensive military capabilities.

The country’s finance minister, Pranab Mukherjee, while presenting the 2011-12 budget to parliament, set the military budget at just over 1.64 trillion rupees ($36.28 billion), up from last year’s 1.47 trillion rupees. In the 2009-10 fiscal year the increase was only 4%.

India’s shopping list during the current fiscal year includes the purchase of 126 combat aircraft, 197 light helicopters and 145 ultra-light howitzer artillery guns for the army.