Let me begin by paying tribute to the Jawans and officers who defend our borders. I express to all of you our nation's gratitude. Since I spoke to you a year ago, the armed forces helped to evacuate stranded Indians from Lebanon, and undertook flood relief operations in Gujarat, Maharashtra, Madhya Pradesh, Rajasthan, Chhattisgarh, and Jammu & Kashmir thus amply vindicating the trust our nation has reposed in our gallant armed forces.

When I spoke to you last year, I discussed the role of the armed forces in India's task of modernization. Our security policy in the emerging global order is a reflection of our national purpose and of our search for peace and security within which to strengthen India economically, socially and technologically. Developing adequate defence capability and science and technology to meet all the contemporary challenges to our security is critical in this effort. And also to develop strategic partnerships, which enlarge our policy choices and improve our development prospects. It is this wider context and higher sense of purpose, which must guide our day-to-day decisions.

We are today in a situation where the pursuit of national interest requires the use of an integrated approach combining political, economic, military and other levers of both soft and hard power.

In overall terms, we face a world of unprecedented economic opportunities, and, at the same time, unprecedented political dangers. To navigate our way through these, calls for statecraft of the highest order.

Developing a national security strategy today is thus an increasingly complex intellectual challenge. The complexity is increased because we seek our goals in a rapidly transforming international context. The world today is moving towards multi-polarity in economic, cultural and most non-military spheres. Even political power is becoming more diffuse. Larger forces of technology and science are re-ordering the distribution of power in the world. Technology has empowered non-State actors to the point where terrorism is a major trans-border threat in many countries.

Similarly, the spread of science has led to the emergence of weapons of mass destruction, most recently seen in its manifestation in North Korea, thus changing the regional balance of power and threatening trans-regional consequences. The transformed security challenges now include anarchistic ideologies, communalism of various kinds, threats from pandemics, and terrorism over and above conventional threats.

International terrorism is the principal challenge today to plural and democratic societies. It not only destroys human life and property but also endangers democratic values, social harmony and economic well-being. Terrorists are becoming increasingly sophisticated in the way they deal death and destruction. Our armed forces have to also deal with insurgents in difficult terrain. There is, thus, a necessity for us to upgrade our capabilities, which have traditionally been geared towards conventional threats, as well as our surveillance and interdiction systems.

Internationally, we have taken a firm stand that the fight against terrorism has to be long-term, sustained and comprehensive. It cannot be ad-hoc, selective or compartmentalized in terms of region, religion or organizations. Terrorist networks sustain themselves due to acts of commission or omission by states. Our strategy cannot be restricted only to the perpetrators of terrorist acts but should also seek to modify the behaviour of the states where terrorists find safe haven, sanctuary and material sustenance.

Interdependence between nations has grown exponentially. Ironically, the same communication and information technologies that have made terrorism a global threat have also eliminated borders to international capital and ideas.

Reorienting our strategic thought to deal with this complexity and to ensure our core national interests is a major challenge that faces us all. In concrete terms it must express itself in a re-working of our relations with the major powers and in our immediate neighbourhood.

Essential to our quest for a modern India true to its genius is a peaceful and prosperous periphery. I have often said that the countries of South Asia have a shared destiny. We can, to an extent, help create such thinking by giving our neighbours greater stake in our economic prosperity. We must be willing to make necessary adjustments in our domestic policies to accommodate this.

The fact, however, is that we live in a dangerous and unstable neighbourhood. Within the sub-continent itself, we face problems of uneven development and its consequences. We cannot afford to see States fail. Political stability and a focus on human development in the region are in our strategic interest.

We have put Pakistan on notice that any democratic government of India would find it difficult to continue on the present path of addressing all outstanding issues unless the Government of Pakistan clearly deal with the issue of terrorism. The India-Pakistan Anti-Terrorism Institutional Mechanism will be a test of Pakistani intentions and capabilities to implement the assurances that they have given us since January 2004.

The economic pull on migrants from Bangladesh of the Indian market offers opportunities to our enemies who seek to incite terrorism in India. And yet the overarching imperative for both Bangladesh and India is to find a pattern of cooperative engagement, which can convert recent economic successes to improve welfare for people on both sides of the border. This will change the economic imbalance, which is causing some of the difficulties that we face with Bangladesh.

Sri Lanka has recently seen an escalation of the civil war and there is still no clarity on whether both sides will live upto their professed desire for meaningful negotiations on a federal solution of Sri Lanka's problems.

With China we have made a good beginning in addressing the border dispute and in creating mutual trust in a peaceful bilateral relationship. RM's recent visit added another dimension to our multi-sided engagement with China, which is predicated on the recognition that these two rapidly developing and transforming nations need to come to terms with the rise of one another.

A critical aspect of our policy must be the rapid development of infrastructure in our border areas. This is now recognized to have major implications not only for our internal security but also as a force multiplier when it comes to our external security. The role of the military in this crucial area of our policy is central across vast areas of our borders.

India's transformation over the last few years has also meant that our stakes in the world and our interdependence with the world has increased exponentially.

Our lines of communication which need to be protected are today not just the maritime links that carry our foreign trade and vital imports, but include our other forms of connectivity with the world. None of this is possible without an active process of security cooperation with like-minded nations and littoral countries.

When we look at our extended neighbourhood we cannot but be struck by the fact that India is the only open pluralistic democratic society and rapidly modernizing market economy between the Mediterranean and the Pacific. This places a special responsibility upon us not only in the defence of our values but also in the search for a peaceful periphery. We have traditionally conceived our security in extending circles of engagement. Today, whether it is West Asia, the Gulf, Central Asia or the Indian Ocean region, there is increasing demand for our political, economic and defence engagement.

We, as the Government, have the will to undertake this new responsibility that devolves upon India. For instance, we need new and creative solutions to the security and development issues that we face in Afghanistan where our efforts to help the Afghan people arouse reactions from the Taliban and their sponsors who are still seeking to put the clock back.

We need to build our nation's capacity to undertake these new responsibilities. The armed forces of India are a major component of that capacity. Given the complex nature of our national security we must ensure a balanced development of our defence capability. Our army, navy and air force are in need of modernization. We need a modernization strategy that enables each of the forces to develop to the level required by the imperatives of our evolving defence doctrine. In pursuing that modernization, we seek the optimal blend of developing and producing indigenously and sourcing from elsewhere.

Our growing economic engagement with the world, especially the region around us, and the requirements of energy security will necessitate strengthening of our naval defence capability. Maritime security is gaining increasing salience in our strategic policy. Equally important is high quality air power so that we can strike with speed and accuracy, when required.

As we look at the components of state power in the 21st Century in terms of our comprehensive national power, we will have to find new and imaginative means of integrating our economic, technological and defence needs. The Defence Ministry has recently taken several steps to do so. One is the introduction of transparency in defence procurement, introducing the Defence Procurement Procedures of 2006. The other is to address long-term proposals from an indigenous viewpoint, thereby giving a fillip to Indian industry. The third is the new Defence Offset Policy for procurements.

Transparency in procurement is a desirable objective both from the viewpoint of good governance and national security. Reports critical of such processes can demoralise the services, where they are untrue, and must be directly addressed, where they are true.

I appreciate the steps being taken to promote 'jointness' in thinking, jointness in planning and jointness in action. This assumes even greater relevance as we invest more in our naval and air capabilities and develop a modern and well-equipped navy and air force. The three services must work together to pack punch and ensure maximum impact in action.

The setting up of the Indian National Defence University (INDU) and the Joint Doctrine for the Indian Armed Forces must translate into joint training and into operational level joint doctrines. The INDU must act as a catalyst in promoting strategic policy analysis and planning. It must contribute to the development of long term strategic thinking.

India today is increasingly integrated into the world and has a renewed capability to deal with it. If our economy continues to grow I am confident we can find the means to meet the needs of our armed forces for equipment and other purposes. If our interests have grown so have the means available to us. Internal security is today a larger concern for us than direct external threats. In fact, the most virulent manifestation of the major external threat that we face is in its internal forms, as we saw in Mumbai in July.

The challenge for us is to show the wisdom to deal with this rapidly evolving situation. Our Government will consistently give the armed forces priority attention whether in terms of their equipment or supplies or in terms of service related issues. In conclusion let me, once again, congratulate all of you on your professionalism and dedication on behalf of a grateful and proud nation.

Jai Hind!