Addressing Army personnel on the occasion of Army Day, Rawat also said that disputes along the Line of Actual Control with China were continuing and the Army was trying to stop the Chinese transgressions.
"Ensuring security along the Line of Actual Control (with China) is our main duty," he said without elaborating further.
Talking about the situation in Jammu and Kashmir, he said the Pakistan Army has been continuously trying to help terrorists sneak into India along the Line of Control (LoC) in J&K.
The Army has been adopting a 'tit-for-tat' approach in dealing with ceasefire violations by Pakistani troops as well as foiling infiltration bids by terrorists.
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"The Army is using its might to teach them a lesson," the Army chief said, adding that, "terrorists and their handlers are creating various challenges within the country by adopting new tactics."
Rawat said the Army will continue to give a befitting reply to Pakistani action along the border.
Young Army officer Fayaz, from Kulgam district, was killed in May last year when he had gone to Shopian to attend the marriage of one of his relatives.
Talking about Pakistan's proxy war and evolving security challenges facing the region, Gen Rawat asked the forces to remain ready to face any eventuality.
"We will have to keep high-level of readiness" to deal with any eventuality, he said.
On defence spending, Rawat said it acts as an engine of economic growth. The armed forces are expecting higher allocation in the budget for 2018-19.
Referring to the security situation in several states of the northeastern region, he said the Army's intelligence based operations have contained militancy to a large extent.
He also cautioned that success is never permanent and the troops will have to continue their hard work to deal with any security challenge.
Rawat said there has been sustained efforts to enhance capability of the Army and that contracts worth Rs 30,000 crore have been finalised in 2017-18.
The Army's aviation wing is being bolstered by inducting new helicopters. He said the missile system in the Army's air defence is also being strengthened.
He said cadre review of JCOs (junior commissioned officers) and other ranks have been approved which has resulted in the creation of 479 additional posts of Subedar major, 7,769 posts of Subedar, 13,466 naib subedars, 58,493 havaldars and 64,930 naiks.
The Army chief also said that an Aadhar-based mobile application is being developed through which Army personnel will be able to post their grievances online. The aim is to resolve their grivances as soon as possible, he said.