India has adjusted its foreign aid allocations in the Union Budget 2025-26, reducing the overall outlay from Rs 5,806 crore in the revised 2024-25 budget to Rs 5,483 crore. However, strategic allocations reflect India's commitment to regional diplomacy, with increased aid for key neighbours such as the Maldives and Afghanistan, while maintaining support for others despite geopolitical tensions.
Bhutan
India continues to prioritize Bhutan in its foreign aid strategy, allocating Rs 2,150 crore for 2025-26. This is a decrease from the revised Rs 2,543 crore in 2024-25 but still represents the highest allocation among neighbouring nations. The assistance primarily supports infrastructure, hydropower projects, and economic development initiatives.
Maldives
Relations between India and the Maldives saw turbulence under President Mohamed Muizzu, who leaned towards China. However, both nations have since worked to mend ties. Reflecting this, India's aid to the Maldives has been increased from Rs 470 crore in 2024-25 to Rs 600 crore in 2025-26. This uptick underscores India's intent to maintain strategic influence in the Indian Ocean region.
Afghanistan
India's fluctuating stance on Afghanistan is evident in its aid allocations. Initially set at Rs 200 crore in 2024-25, the amount was later slashed to Rs 50 crore. In the latest budget, it has been doubled to Rs 100 crore, signalling India's cautious yet continued engagement with Afghanistan, particularly following recent diplomatic exchanges.
Bangladesh
Following Sheikh Hasina's government's fall in August 2024 and the rise of an interim administration under Mohammad Yunus, India’s relations with Bangladesh have faced challenges. Nevertheless, India's aid remains unchanged at Rs 120 crore for 2025-26. This stability reflects India's long-term perspective on bilateral ties, recognizing potential future shifts in Bangladesh’s foreign policy.
Myanmar
With the ongoing conflict between Myanmar’s military regime and rebel groups, India has reduced its aid from Rs 400 crore to Rs 350 crore. Additionally, India has tightened border regulations to prevent the spillover of unrest into its northeastern states, balancing humanitarian concerns with national security interests.
Nepal
Despite growing Chinese influence in Nepal, India has retained its assistance at Rs 700 crore, identical to the previous year’s revised budget. This reflects India's steady diplomatic approach, ensuring continued engagement without drastic policy shifts.
Sri Lanka
Sri Lanka, recovering from its recent economic crisis, continues to receive Rs 300 crore in Indian aid, the same as last year. The Sri Lankan President’s recent visit to India indicates strengthened bilateral ties, reinforcing India's role in Sri Lanka’s economic stabilization efforts.
Expanding Global Engagement
Africa: Aid has been increased from Rs 200 crore to Rs 225 crore, signalling India’s growing interest in deepening economic and diplomatic ties on the continent.
Latin America: Assistance has been reduced from Rs 90 crore to Rs 60 crore, reflecting a strategic realignment of India’s global outreach.
Iran (Chabahar Port): Rs 100 crore has been allocated for the Chabahar Port project, a crucial initiative for India’s connectivity and trade ambitions in Central Asia.
Strategic Implications of India's Foreign Aid Policy
According to Professor Premananda Mishra of Jamia Millia Islamia University, financial assistance is a crucial tool for regional power projection. Smaller nations like Nepal, Bhutan, and the Maldives depend on external support, and India's aid policies help counterbalance China's growing influence.
Economic engagement is a long-term investment—by assisting neighbouring countries, India fosters goodwill, enhances its regional image, and asserts its economic strength. As international relations increasingly hinge on perception, India's aid strategy not only secures strategic partnerships but also demonstrates its financial resilience and leadership in South Asia.
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