New Delhi: The Union Budget 2026–27 presented by Finance Minister Nirmala Sitharaman on Sunday has marginally increased the allocation for the Ministry of External Affairs (MEA) over the previous fiscal year’s revised estimates, but the fine print tells a more complicated story.
Even as overall funding has inched up, India has pared back development assistance to Bangladesh and made no provision at all for the Chabahar port in Iran, reflecting how fiscal restraint may be reshaping India’s diplomatic footprint.
The budgetary allocation for the External Affairs Ministry this year is ₹22,118.97 which is slightly higher than the revised estimates of ₹21,742.74 crore in fiscal 2025-26.
External Affairs Minister S Jaishankar congratulated Sitharaman for presenting a budget which he described as “reform express”-oriented.
“Congratulate Finance Minister Smt. @nsitharaman ji for presenting a budget with the message that the #ReformExpress rolls on,” Jaishankar posted on his X handle. “As we enter the second quarter of this Century, these budget proposals will be crucial to shaping our prospects.”
This time, the budgetary allocation under the head ‘Aid to Countries’ is slightly higher compared to the 2025-26 Budget. The amount allocated under this head in the Union Budget 2025-27 is ₹5,685.56 crore compared to the budgetary allocation of ₹5,483 crore in the last financial year. This head provides for India’s multilateral and bilateral aid and assistance programmes to neighbouring and other developing countries. This assistance is provided to immediate neighbouring countries and also to the countries of Africa, Central Asia, South Asia and Latin America. It also caters for aid for disaster relief and humanitarian aid.
Despite an increase in funds under the ‘Aid to Countries’ head, there has been a drastic cut in developmental aid to Bangladesh reflecting the strained diplomatic ties between New Dehi and Dhaka. Aid to Bangladesh has been slashed by half to ₹60 crore from ₹120 crore last fiscal. Ever since the ouster of Sheikh Hasina as Prime Minister in August 2024 and installation of an interim government headed by Muhammad Yunus, there has been a series of attacks on minorities, mainly Hindus, in that country by Islamist fundamentalists. India has been consistently voicing its concerns over these attacks and has held the view that the interim government has not taken any action against the perpetrators of these crimes. All developmental work of India in Bangladesh has come to a halt because of the situation in that country.
Another interesting feature is that there has been no aid allocation at all for the Chabahar port in Iran of which India is a partner. Last fiscal, the budgetary allocation for Chabahar port was ₹100 crore.
The move comes even though India signed a 10-year agreement in 2024 to operate the Shahid Beheshti terminal at Chabahar, a project considered crucial for securing India’s access to Afghanistan and Central Asia while circumventing Pakistan. The funding pause also aligns with growing external pressure on India’s engagement with Iran, following US President Donald Trump’s announcement of a 25 percent tariff on countries trading with Tehran – undercutting earlier sanctions waivers and injecting fresh uncertainty into India’s involvement in the project and its wider regional connectivity ambitions.
Meanwhile, as usual, Bhutan is the biggest beneficiary under the head ‘Aid to Countries’. This time, the amount allocated for Bhutan is ₹2,288.56 crore, which is, higher than ₹2,150 crore allocated in fiscal 2023-24. Nepal is the second biggest beneficiary with an allocation of ₹800 crore, up from ₹700 crore last year.
Though India’s ties with the Maldives have been improving after an initial setback following the election of Mohamed Muizzu as President, there is a slight dip in aid allocation compared to last year. The amount allocated to the Indian Ocean archipelago nation is ₹550 crore which is slightly lesser than ₹600 crore last year.
Sri Lanka, a country that faced a huge financial crisis three years ago and for which India played an important role in providing debt relief, has been allocated a development aid fund of ₹400 crore. This is higher than the ₹300 crore provided last year. India, it should be noted, was the biggest humanitarian assistance and disaster relief (HADR) provider after Cyclone Ditwah hit Sri Lanka last year.
Myanmar, another of India’s eastern neighbours, which has been facing a violent resistance movement against the ruling military junta, has been allocated ₹300 crore, down from ₹360 crore last year.
With India improving ties with the Taliban regime in Afghanistan by upgrading its mission in Kabul to that of an embassy and allowing a Taliban official to take charge of the Afghan Embassy in New Delhi, developmental aid for that country has also gone up. The amount allocated this year is ₹150 crore, up from ₹100 crore last year.
Though India looks to expand its presence in the western Indian Ocean by upgrading its Security and Growth for All in the Region (SAGAR) framework to that of Mutual and Holistic Advancement for Security and Growth Across Regions (MAHASAGAR), allocations for development assistance to countries in the region have also been stepped up. Funding for Mauritius has been set at ₹550 crore, up from last year’s allocation of ₹500 crore, while assistance to the Seychelles has set at ₹19 crore, the same as last year. In addition, ₹225 crore has been earmarked as development aid for other African countries, the same as in the previous year.
Though India has been increasing its engagement with the Central Asian region, there has a slight dip in the allocation for Eurasian nations. The amount allocated this year is ₹38 crore, which is slightly lower than ₹40 crore allocated last fiscal.
Of late, India has been increasing its footprint in the Caribbean and Latin American countries. This is reflected in the doubling of the allocation for Latin American countries – from ₹60 crore last year to ₹120 crore this year.
A total amount of ₹451.19 crore has been set aside for autonomous bodies functioning under the External Affairs Ministry. These include the Indian Council of Cultural Relations (ICCR), the Indian Council of World Affairs (ICWA), the Society for Research and Information System for Non-Aligned, Other Developing Countries (RIS) and the India Centre for Migration. The expenditure caters for grants-in-aid salaries and grants-in-aid-general.
Apart from the autonomous bodies, under the ‘Other Central Sector Expenditure’ head, an amount of ₹5,599.88 crore has been allocated. This caters to the discretionary expenditure, Commonwealth Secretariat, international organisations, UN organisations, South Asian Association for Regional Cooperation (SAARC) Secretariat, and construction of South Asian University and Nalanda International University. This also caters to maintenance cost of aircraft of Air India for VVIP travel, demarcation of boundaries, celebration of Pravasi Bhartiya Divas, Kailash Mansarovar Yatra, Indian Society of International Law, support for Institutes of Chinese Studies, Centre for Land Warfare Studies Centre for UN Peacekeeping and Expenditure on Foreign Service Institute.
Apart from these, this head also includes funds provided to the Exim Bank against the invocation of Government of India guarantees for loans to other countries, which are considered doubtful debts.
Taken together, the Budget 2026–27 suggests a cautious recalibration rather than an expansion of India’s external engagements. While the marginal rise in the External Affairs Ministry’s overall allocation provides operational continuity, the cuts to Bangladesh aid and the absence of funding for Chabahar underline a preference for selective commitments amid geopolitical uncertainty and fiscal constraints.