Ms Sitharaman, at a press conference, also asserted that there was no shortage of ammunition for the armed forces which had been the case during the previous government.
"The defence expenditure has been highest in 2017-18 if you look at it since 2004-05. In the same manner, it was second highest in 2016-17 and third highest in 2015-16. The fourth highest defence expenditure since 2004-05 was in 2014-15," she said.
In March, the Parliamentary Standing Committee on Defence, headed by BJP MP Maj Gen (retd) B C Khanduri, had come down hard on the government for inadequate allocation of funds to the Army, Navy and the Air Force.
The Army had told the panel that it was reeling under severe financial crunch and struggling to even make emergency procurements when China and Pakistan were carrying out modernisation of their defence forces in "full swing".
The then Vice Chief of Army Staff Lt Gen Sarath Chand had told the parliamentary panel that inadequate allocation of funds in the defence budget for 2018-19 will hit the Army's modernisation plan when Chinese military was competing to reach the level of the US.
He said 68 per cent of the Army's equipment is in the vintage category, adding that the fund crunch will also impact the serviceability of the existing equipment and may even affect payment of instalments for past purchases.
While giving reply to a question, the defence minister reeled out budget figures and said there had been no shortage of funds for the armed forces at all.
In 2013-14, she said the capital outlay for defence services was Rs 86,740 crore the actual expenditure was Rs 79,125 crore.
She said the capital outlay for defence services was Rs 94,587 crore in 2014-15, while the actual expenditure was Rs 81,886 crore.
In 2016-17,capital outlay for defence was Rs 86,340 crore and expenditure was Rs 86,370 crore.
"I want to dispel the myth that the funds which have been given are lesser than ever before," Ms Sitharaman said.
Asked whether the Army was unreasonable on its demands for more funds, the defence minister did not give a direct reply but said the service headquarters should rationalise procurement list to cater to new technology.
She said the armed forces need to review their wishlist as new technology has come and some of the equipment they wanted may not be required now.
Ms Sitharaman said financial powers were given to the service headquarters and that was the reason why there was no shortage of ammunition for the armed forces in the last four years.
Army sources, however, maintain that there has been shortage of ammunition for a long-duration war.
The government allocated Rs 76,765 crore less to the Army, Navy and Air Force in the defence budget than what they had been sought to purchase new weapons, aircraft, warships and other military hardware, according to official figures.
The three forces had demanded Rs 1.60 lakh crore as capital outlay but were granted Rs 83,434 crore for the year 2018-19.