Budget 2026 reveals how India’s aid diplomacy remains anchored in neighbourhood-first commitments, even as global uncertainty tempers its broader development ambitions
As India’s Finance Minister Nirmala Sitharaman unveiled her ninth consecutive Union Budget on 1 February 2026, attention was understandably on the Budget’s new measures—including taxation administration, expenditure on education and employment, and government infrastructural plans. Based on three core kartavyas, FM Sitharaman emphasised that the Budget revolves around a) “the need to accelerate and sustain economic growth by enhancing productivity and competitiveness, and building resilience to volatile global dynamics, b) to fulfil aspirations of people and build their capacity, making them strong partners in India’s path to prosperity and, c) aligning with vision of Sabka Sath, Sabka Vikas, to ensure that every family, community, region, and sector has access to resources, amenities and opportunities for meaningful participation”.
However, India’s domestic aspirations for socio-economic progress are closely intertwined with how it positions itself on the international stage. New Delhi’s global ambition of establishing itself as a reliable development partner is significantly driven by its own development story. Yet as India navigates an increasingly uncertain global economic order, development diplomacy—mostly through aid— has largely remained static in this year’s budget, as in the previous year. This constitutes a cautious approach, given the turbulent geoeconomic tensions unfolding in international politics.
A look at the aid allocations reveals the continued emphasis on India’s ‘Neighbourhood First’ policy. In the context of growing Chinese influence and wider geopolitical turbulence, bolstering India’s diplomatic clout is perceptibly the need of the hour.
Although the Ministry of External Affairs (MEA) has been among the least-funded ministries over the years, it remains well placed to leverage India’s Viksit Bharat vision to anchor Global South-led development partnerships. As per Demand No.29 of the MEA Budget Statement, the total outlay for the MEA has marginally increased from INR 21,742.74 crore in the previous year to INR 22,118.97 crore in FY 2026–27. A look at the aid allocations reveals the continued emphasis on India’s ‘Neighbourhood First’ policy. In the context of growing Chinese influence and wider geopolitical turbulence, bolstering India’s diplomatic clout is perceptibly the need of the hour.
With Bhutan receiving a major portion of the aid—INR 2,288.56 crore—aid support to Nepal (INR 800 crore), Sri Lanka (INR 400 crore), and Myanmar (INR 300 crore) has remained at the same levels relative to last year’s budget. Aligned with India’s policy of enhancing connectivity in the neighbourhood, these aid allocations can be interpreted as instruments through which New Delhi seeks to prioritise mutual growth and development among its neighbours, thus contributing to wider regional and global public goods. These initiatives span high-level infrastructure projects, humanitarian assistance, defence, maritime partnerships, as well as local development projects—such as hydropower, health, vaccine distribution, and strengthening people-to-people connections.
However, aid support for Bangladesh has been reduced by half, from INR 120 crore in 2025-26 to INR 60 crore this year, marking a critical change in India’s development assistance approach towards Dhaka. Growing political turmoil along India’s eastern flank, persistently strained relations with Pakistan, and the increasing bonhomie between Dhaka and Islamabad have raised concerns in New Delhi. Further, the Indian government has repeatedly raised concerns about atrocities against Hindu minorities in Bangladesh.
On the other hand, India appears to be gradually normalising ties with the Afghan Taliban administration, as evidenced by the visit of the Afghan Foreign Minister, Amir Khan Muttaqi, in October 2025. Under the budget, aid to Afghanistan has been pegged at INR 150 crore, reflecting a calibrated adjustment in India’s strategic posture towards Kabul.
Aid support for Bangladesh has been reduced by half, from INR 120 crore in 2025-26 to INR 60 crore this year, marking a critical change in India’s development assistance approach towards Dhaka. Growing political turmoil along India’s eastern flank, persistently strained relations with Pakistan, and the increasing bonhomie between Dhaka and Islamabad have raised concerns in New Delhi.
Yet again, geopolitical and geoeconomic considerations continue to shape development projects, as best witnessed in the case of the Chabahar project. Despite India and Iran signing a ten-year agreement, the Chabahar port has received no budgetary allocation this year, reflecting constraints arising from renewed tensions between the US and Iran. As a result, India is expected to proceed cautiously, carefully navigating the complex trade pressures and sanctions imposed on Tehran by the Trump administration.
Table 1: India’s Aid Allocations in Budget 2026
| Aid to Countries | Budget 2025-2026 (in INR crore) | Revised 2025-2026 (in INR crore) | Budget 2026-2027 (in INR crore) |
| Bhutan | 2,150 | 1,950 | 2,288.56 |
| Afghanistan | 100 | 100 | 150 |
| Bangladesh | 120 | 34.48 | 60 |
| Nepal | 700 | 830 | 800 |
| Sri Lanka | 300 | 300 | 400 |
| Maldives | 600 | 625 | 550 |
| Myanmar | 350 | 200 | 300 |
| Mongolia | 5 | 25 | 25 |
| African Countries | 225 | 211.92 | 225 |
| Eurasian Countries | 40 | 13.32 | 38 |
| Latin American Countries | 60 | 96.68 | 120 |
| Other Developing Countries | 150 | 80 | 80 |
| Disaster Relief | 64 | 80 | 80 |
| Chabahar Port | 100 | 400` | - |
| Mauritius | 500 | 824 | 550 |
| Seychelles | 19 | 15 | 19 |
| Total Aid to Countries | 5483 | 5785.40 | 5685.56 |
Source: India Budget 2026
As the development landscape undergoes increasing strain, India, along with other countries in the Global South, faces a formidable task ahead: balancing security threats with developmental goals. Starting the year with an aid budget is certainly the way ahead, but it remains to be seen how effectively New Delhi manages to implement its aid diplomacy amid broader geopolitical and geoeconomic uncertainties.
Swati Prabhu is a Fellow with the Centre for New Economic Diplomacy (CNED) at the Observer Research Foundation.
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Dr Swati Prabhu is a Fellow with the Centre for New Economic Diplomacy at Observer Research Foundation. Her research explores the idea of aid, role of ...
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