The Union Budget 2026-27 has brought significant changes to India's foreign aid allocations, most notably a sharp reduction in assistance to Bangladesh and the omission of funding for the Chabahar Port project in Iran. The budget was presented by Finance Minister Nirmala Sitharaman on Sunday, February 1, 2026.
Aid to Bangladesh has been slashed by 50%, decreasing from ₹120 crore in the 2025 budget to ₹60 crore. Revised estimates for FY26 showed an even more drastic reduction, with allocations falling by over 70% to ₹34.48 crore. This cut comes amid reports of strained bilateral relations. Some reports suggest that the reduction reflects "frosty bilateral ties".
In contrast to the reduction in aid to Bangladesh, Bhutan remains the largest recipient of Indian aid, with an allocation of ₹2,288 crore, an increase of about 6%. This reflects continued support for hydropower and infrastructure projects in Bhutan. Nepal's allocation also increased by around 14% to ₹800 crore, while Sri Lanka's aid rose by about one-third to ₹400 crore, highlighting India's role in the island nation's post-crisis recovery. Aid to the Maldives was reduced by about 8% to ₹550 crore, while Mauritius received a 10% increase to the same amount.
In a notable departure from recent years, the Union Budget 2026-27 includes no specific allocation for the Chabahar Port project in Iran. This has raised questions about India's long-term commitment to the strategically vital port. While the budget for the last year initially set aside ₹100 crore for the project, the revised estimate saw this amount increase to ₹400 crore. The Chabahar Port is considered a key component of the International North-South Transport Corridor (INSTC) and is viewed as a critical gateway for trade and connectivity to Afghanistan, Central Asia, and Russia. The absence of funding has fueled geopolitical uncertainty and speculation about the impact of US policy towards Iran.
The total amount allocated to the Ministry of External Affairs (MEA) is ₹22,118 crore, compared to the previous fiscal year's budget estimate of ₹20,516 crore and a revised estimate of ₹21,742 crore. The allocation under "Aid to Countries" has been raised to Rs. 5,686 crore, about 4% higher than last year's Budget Estimates. This head provides for India's multilateral and bilateral aid and assistance programs to neighboring and other developing countries.
External Affairs Minister S Jaishankar responded to the budget, congratulating Finance Minister Nirmala Sitharaman.