In the Union Budget 2026–27, the Indian government has allocated ₹5,685.56 crore under “Aid to Countries” to support various foreign governments with grants and development assistance. This allocation is part of India’s broader diplomatic and development cooperation strategy. Notably, Bhutan emerges as the largest recipient, receiving a significant share of this foreign aid.
Reduction in Aid to Bangladesh
One of the noteworthy changes in foreign aid this year is the significant reduction in India’s assistance to Bangladesh. The allocation has been cut by 50% compared to the previous period — dropping from ₹120 crore to ₹60 crore. This move reflects a reassessment of bilateral support and comes amid evolving diplomatic relations between the two countries.
Chabahar Port Funding Omitted
Perhaps the most striking shift in the foreign aid budget is the absence of any allocation for the Chabahar Port project in Iran. In previous budgets, India had provided funds for this strategic infrastructure project, which is seen as key for enhancing connectivity to Afghanistan and Central Asia — bypassing Pakistan’s routes. Despite a 10-year agreement signed in 2024 to operate the Shahid Beheshti terminal, the 2026–27 budget shows no funding for the project at all. Analysts suggest that geopolitical pressures and changing priorities likely influenced this decision.
Other Neighbouring Countries’ Aid
While funding to Bangladesh has been sharply reduced and Chabahar has no allocation this year, India continues to extend financial support to several neighbours and partners:
- Bhutan: Aid increased to around ₹2,289 crore
- Nepal: Allocation up to ₹800 crore
- Sri Lanka: Aid raised to about ₹400 crore
- Maldives: Funding of around ₹550 crore
- Afghanistan: ₹150 crore for humanitarian support
- Myanmar and African countries: Mixed changes in aid levels
These figures show that while some traditional allocations have changed, India still maintains active engagement with its neighbours and other regions through foreign grants and development cooperation.
Strategic Implications
The shift in foreign aid spending patterns suggests a recalibration of India’s diplomatic priorities in Budget 2026–27. Cutting Bangladesh’s aid by half and dropping funding for Chabahar — despite earlier commitments — may send strategic signals to neighbouring countries and global partners about India’s focus areas amid evolving geopolitical dynamics.
