From Bangladesh to Nepal: Decoding India's aid to neighbours in Budget 2026

The 2026 Budget, presented by Finance Minister Nirmala Sitharaman on Sunday, signalled a clear push to strengthen ties with the neighbouring countries

The Indian government increased the aid allocation for neighbouring countries, including Afghanistan, Bhutan and Nepal, while slashing the same for Bangladesh in the Union Budget for the financial year 2026-27.

 

The 2026 Budget, presented by Finance Minister Nirmala Sitharaman on Sunday, February 1, signalled a clear push to strengthen ties with the neighbouring countries, in line with its 'Neighbourhood First' policy.

Higher support for Bhutan

Bhutan, one of India's closest strategic partners, received one of the biggest hikes. The government raised aid to Bhutan to ₹2,288.55 crore in FY27, up from ₹2,150 crore in FY26. The revised estimates (RE) for FY26 stood at ₹1,950 crore.

 

 

The latest increase highlights the strong and long-standing relationship between the two countries, especially in areas like hydropower projects and infrastructure development.

More focus on Afghanistan

India's allocation for Afghanistan also increased by ₹50 crore, rising from ₹100 crore to ₹150 crore in FY27, hinting at more Indian-supported projects in the coming year. Even the RE for Afghanistan had remained the same at ₹100 crore in FY26.

 

Ties between India and Afghanistan have been growing gradually. Last year, India upgraded its mission in Kabul to an embassy, and in January, Afghanistan appointed a diplomat in New Delhi, reflecting deeper engagement.  ALSO READ | 16th Finance Commission: Which states gain and lose under new tax formula

More aid for Nepal and Sri Lanka

Nepal has been allotted ₹800 crore in the 2026 Budget, marking a ₹100 crore increase from ₹700 crore in FY26. Sri Lanka has also received an additional ₹100 crore, taking its total allocation to ₹400 crore.

 

While there was no change in the RE for Nepal, the revised estimates for Sri Lanka were lowered marginally to ₹300 crore in FY26 from the Budget estimates (BE) of ₹317 crore. The higher support comes as both countries continue efforts to recover from recent economic stress.

Big jump for Mongolia, rise for Mauritius

Some smaller neighbours saw sharp increases in the aid allocation. Aid for Mongolia was increased by ₹20 crore from ₹5 crore to ₹25 crore. The latest boost was in line with the RE of ₹25 crore in FY26.

 

Mauritius also received ₹550 crore, an increase of ₹50 crore. However, the allotted aid was much lower than the RE of ₹824 crore in FY26. Seychelles’ allocation, however, remained unchanged at ₹19 crore after being lowered to ₹15 crore in the revised estimates.

Cuts for Bangladesh, the Maldives and Myanmar

In contrast, funding for Bangladesh was halved to ₹60 crore in FY27 from ₹120 crore in the previous financial year. The reduction comes amid heightened tensions between the two neighbours, following Bangladesh’s extradition requests related to former prime minister Sheikh Hasina, who has been convicted of crimes against humanity and sentenced to death. Notably, the latest allotment marks an increase from the RE of ₹34.48 crore for Dhaka.

 

Aid to the Maldives has been cut by ₹50 crore to ₹550 crore, while Myanmar’s allocation has dropped by ₹50 crore to ₹300 crore. The aid for the Maldives was downsized significantly as compared to the RE of ₹625 crore in FY26.

 

Support for the Maldives was increased to ₹600 crore in FY26, up ₹200 crore from the previous year. The increase last financial year followed Male’s efforts to strengthen ties with New Delhi, which had been strained after President Mohamed Muizzu’s election.