He is also likely to hike the defence capital outlay to Rs 62,000 crore from Rs 54,824 crore provided in the interim budget for 2009-10. Last fiscal, then Finance Minister P Chidambaram had earmarked Rs 48,007 crore for capital spending.

The Defence Ministry has maintained that OROP was “not feasible administratively” and new pay grades would be worked out to bring “the quantum of pension of pre-1997 pensioners on a par with post-1997 and pre-2006 pensioners”.

Ex-servicemen, who retired before the Sixth Pay Commission recommendations were implemented, have been demanding parity in pensions as the gap between past and present retirees had widened. President Pratibha Patil, in her address to the joint sitting of Parliament on June 4, had promised to resolve the issue by end-June.

Though the capital outlay is expected to be raised in the forthcoming budget, the forces modernisation budget — part of the capital outlay — will stay pegged at around Rs 46,000 crore, as announced in the interim budget because South Block could not spend about Rs 7,000 crore of the modernisation budget last fiscal.

The total modernisation budget was pegged at Rs 37,000 crore in the 2008-09 Budget.

Government sources told The Sunday Express that the main outlay this coming fiscal is going to be on account of the Gorshkov aircraft carrier deal and the Brahmos missile system. Other big-ticket items like multi-role combat aircraft and attack helicopters are at a trial stage and some distance away from signing of contracts.

The flight evaluation trials for $11-billion MMRCA is slated to begin this month, the Indian Air Force has re-sought 22 twin-engine attack helicopters valued at $600 million. Extra money is also being set aside maintaining strategic balance with the northern neighbor in light of build up additional capacities in Tibet.

While presenting the interim budget this year, Finance Minister Pranab Mukherjee had justified the raise “to strengthen the security in view of the recent terror attacks” even though the Defence Ministry had failed to fully utilise the funds made available last year.