NEW DELHI: India has sharply reworked its overseas development assistance in the Union Budget 2026–27, cutting aid to Bangladesh by half and making no allocation for the Chabahar port project in Iran, even as overall assistance routed through the Ministry of External Affairs (MEA) sees a marginal increase.
The allocation under “Aid to Countries” has been raised to Rs. 5,686 crore, about 4% higher than last year’s Budget Estimates of Rs. 5,483 crore. However, the outlay is around Rs. 100 crore lower than the Rs. 5,785 crore provided in the Revised Estimates for 2025–26, signalling tighter fiscal prioritisation.
The most significant shift is the complete absence of funding for the Chabahar port project. India had spent Rs. 400 crore on the project in 2024–25 and initially allocated Rs. 100 crore in the 2025–26 Budget Estimates, later raising it to Rs. 400 crore in the Revised Estimates. The allocation for 2026–27 now stands at zero.
The decision comes despite India signing a 10-year agreement in 2024 to operate the Shahid Beheshti terminal at Chabahar, a project seen as vital for India’s access to Afghanistan and Central Asia while bypassing Pakistan.
The pause also coincides with increased external pressure on India’s engagement with Iran after US President Donald Trump announced a 25% tariff on countries trading with Tehran, effectively weakening earlier sanctions waivers. This has added uncertainty to India’s role in the project and its broader regional connectivity plans.
Among neighbouring countries, Bangladesh sees one of the sharpest reductions, with its allocation cut from Rs. 120 crore to Rs. 60 crore. The reduction comes amid strained bilateral relations, even as aid to most other neighbours is maintained or increased.
Bhutan remains the largest recipient of Indian aid, with its allocation rising by about 6% to Rs. 2,289 crore, reflecting continued support for hydropower and infrastructure projects. Nepal’s allocation increases by around 14% to Rs. 800 crore, while Sri Lanka’s aid rises by about one-third to Rs. 400 crore, highlighting India’s role in the island nation’s post-crisis recovery.
In the Indian Ocean region, aid to the Maldives is reduced by about 8% to Rs. 550 crore, while Mauritius receives a 10% increase to the same amount.
Aid to Afghanistan remains unchanged at Rs. 150 crore, mainly for humanitarian assistance. Myanmar’s allocation is cut by about 14% to Rs. 300 crore amid political instability and implementation challenges. Assistance to African countries is held steady at Rs. 225 crore, Latin America’s allocation doubles to Rs. 120 crore from a low base, and funding for Eurasian countries dips slightly to Rs. 38 crore.
Overall, the new allocations broadly follow India’s neighbourhood-first approach, with selective changes reflecting evolving geopolitical sensitivities. The MEA’s total expenditure for 2026–27 is estimated at Rs. 22,119 crore.