India on Friday boosted military spending by 17 percent to $40 billion for the coming year as it seeks to counter China's rapid military build-up and its traditional rival Pakistan.

The government, engaged in a massive programme to upgrade the country's ageing military hardware, increased defence spending to 1.93 trillion rupees ($40 billion) for the financial year to March 31, 2013.

"This allocation is based on present needs and any further requirement will be met," Finance Minister Pranab Mukherjee told lawmakers in announcing the 2012-13 budget in parliament.

The rise follows a 12 percent increase in defence spending in the previous year's budget.

India has fought three wars with arch-rival Pakistan since independence in 1947, but China is increasingly seen as the main focus of its ambitious military modernisation and procurement policy.

China earlier this month announced an 11.2 percent hike in military spending for 2012 to $106.41 billion, in a move analysts said would fuel concerns about Beijing's military build-up and increase regional tensions.

The 2,000-kilometre (1,200-mile) border between India and China has been the subject of inconclusive diplomatic talks since the 1980s after the two nations fought a brief but brutal war in 1962.

India, one of the biggest importers of military hardware in the world, is also racked by major internal security problems.

India's military is acquiring a slew of new equipment from combat aircraft to submarines and artillery.

It is currently finalising a deal with France's Dassault Aviation to buy 126 Rafale fighter jets in a contract worth an estimated $12 billion.