New Delhi, Nov 22 (IANS): India will continue to confront formidable security challenges in the neighbourhood, Prime Minister Manmohan Singh said Friday adding that there was need to exercise prudence in defence acquisition plans due to slowdown in economy and "cut our coat according to our cloth".

Addressing the combined commanders' conference here, the prime minister said though the country needs to take into account the capabilities of its adversaries, the long-term acquisition had to be planned on the assumption of limited resource availability.

"We need to match our investment in military equipment and forces to our national resources. During most of the past decade, we have had the benefit of average annual growth rates of eight percent. But the past two years have seen slow growth and we continue to face an uncertain international economic climate marked by volatile exchange rate fluctuations and the possibility of fragmenting trade regimes," he said.

The prime minister said he had no doubt the country would overcome current economic slowdown, but "we will have to exercise prudence in our defence acquisition plans and cut our coat according to our cloth".

He said the driving principle was to create a military that is driven by abiding interests, as opposed to the transient threat.