Budget 2026: India Recalibrates Foreign Aid Priorities

India’s Union Budget for FY27 signals a strategic recalibration of its foreign assistance programme, marked by selective increases for key neighbours and sharp cutbacks elsewhere. The revised allocations reflect New Delhi’s effort to balance neighbourhood diplomacy with fiscal restraint and geopolitical risk management.

Higher Grants for Bangladesh and Strategic Signalling

India has increased grant assistance to Bangladesh to ₹60 crore in FY27, a 74% rise from ₹34.48 crore in the revised estimates for FY26. The Ministry of External Affairs had initially proposed ₹120 crore for FY26 before scaling it down. The higher FY27 allocation underlines India’s intent to sustain engagement with Dhaka despite periodic political tensions and domestic anti-India narratives.

Chabahar Port Funding Discontinued

Grant assistance for the Chabahar Port project in Iran has been entirely discontinued in FY27. India had provided ₹400 crore in FY25 and indicated similar support in the revised estimates for FY26. The withdrawal is widely attributed to intensifying United States sanctions pressure and concerns over potential secondary sanctions linked to Iran-focused infrastructure projects.

Shifts Across Neighbourhood and Extended Regions

Aid to Afghanistan has been raised by 50% to ₹150 crore, placing it among the top beneficiaries for FY27. Bhutan remains the largest overall recipient, with ₹2,288 crore allocated, including ₹1,769 crore in grants and ₹520 crore in loans, reflecting a 17% increase over FY26.

At the same time, allocations have been reduced for several partners. Assistance to Mauritius has been cut by 33% to ₹550 crore, while Maldives has seen a 12% reduction to the same level. Aid to Nepal has declined marginally by 4% to ₹800 crore. In contrast, grants to Sri Lanka have risen by 33% to ₹400 crore, alongside moderate increases for Seychelles, African nations, Eurasian states, and Latin America.

Important Facts for Exams

• Foreign aid allocations are split between the Ministry of External Affairs and the Ministry of Finance.
• Bhutan remains India’s largest foreign aid recipient by value.
• Chabahar Port funding has been halted due to sanctions-related risks.
• Total foreign assistance in FY27 shows a sharp year-on-year decline.

Overall Decline in Foreign Assistance Outlay

Despite targeted increases, India’s total grants and loans to foreign governments in FY27 stand at ₹8,792 crore, a 27% decline from the revised FY26 estimate of ₹12,107 crore. Of this, ₹6,997 crore will be channelled through the Ministry of External Affairs and ₹1,794 crore through the Ministry of Finance.