Bhutan Gets Lion's Share Of Foreign Grants In Budget 2026, Uptick In Aid To Afghanistan: What This Means

Last Updated:February 01, 2026, 21:22 IST

The increased MEA allocation marks a strategic pivot under the 'Neighbourhood First' policy, where foreign aid will be used as a tool for regional balancing

Union Finance Minister Nirmala Sitharaman outlined a significant shift in India’s regional priorities as the MEAreceived an increased total outlay of Rs 22,118.97 crore. (Image: PTI)

The distribution of foreign aid in the allocation to the ministry of external affairs in the Union Budget 2026 signals a new geopolitical strategy for India amid significant churning in the global order.

During the presentation on Sunday, Union Finance Minister Nirmala Sitharaman outlined a significant shift in India’s regional priorities as the ministry of external affairs (MEA) received an increased total outlay of Rs 22,118.97 crore.

This allocation – rising from Rs 20,516.61 crore in the previous fiscal year – marks a strategic pivot under the ‘Neighbourhood First’ policy, where foreign aid will be used as a tool for regional balancing. While traditional allies like Bhutan continue to receive the lion’s share of support, the budget showed a notable redistribution of funds that reflects India’s evolving stance toward the Taliban in Afghanistan and its cooling relations with other neighbours.

THE WINNERS AND LOSERS

According to the MEA allocation in the Budget 2026, Bhutan remains India’s most critical strategic partner receiving the highest allocation of Rs 2,288.55 crore to bolster infrastructure and hydropower projects.

Beyond Bhutan, New Delhi has significantly increased its commitments to Nepal and Sri Lanka that were allocated Rs 800 crore and Rs 400 crore, respectively, each seeing a Rs 100 crore uptick from the previous year. The boost for Sri Lanka follows recent humanitarian assistance provided by India in the wake of cyclone ‘Ditwah’. Mongolia emerged as a surprise beneficiary, with its aid jumping fivefold from Rs 5 crore to Rs 25 crore.

Conversely, aid to the Maldives and Myanmar has been trimmed with both nations seeing their allocations fall to Rs 550 crore and Rs 300 crore, respectively — a decrease of Rs 50 crore each. These adjustments suggest a more cautious financial approach to regimes where political alignment has become complex.

The most drastic changes, however, were reserved for Afghanistan and Bangladesh, reflecting different trajectories of India’s bilateral ties with its closest neighbours.

THE AFGHANISTAN PIVOT

A standout feature of the 2026 budget is the threefold increase in aid to Afghanistan, which rose to ₹150 crore. This fiscal boost comes as India begins to formalise its engagement with the Taliban administration, moving past years of diplomatic freeze following the group’s return to power in 2021. This shift is being described by experts as a “policy of pragmatism" designed to protect regional interests and counterbalance Pakistani influence.

The diplomatic evolution reached a milestone in October 2025, when India hosted a weeklong official visit by the Taliban’s Foreign Minister, Amir Khan Muttaqi. During this groundbreaking trip, Muttaqi met with India’s External Affairs Minister S. Jaishankar to discuss trade and economic ties. Jaishankar reaffirmed India’s commitment to the “sovereignty, territorial integrity, and independence of Afghanistan," while Muttaqi termed India a “close friend". The visit even included a symbolic trip to the Darul Uloom Deoband seminary, highlighting a willingness to engage with the ideological roots of the region.

Further solidifying this presence, the Taliban-appointed diplomat Noor Ahmed Noor recently arrived in New Delhi to take charge as Charge d’Affaires at the Afghan embassy. While India still does not officially recognise the Taliban government, the appointment of Noor — who previously served as a Director General in Kabul’s foreign ministry — marks a de facto acceptance of the new political reality. For now, the embassy continues to fly the tricolour flag of the former Afghan republic, but the presence of a Taliban-backed envoy signals a “technical" upgrade of relations.

Analysts suggest this outreach is driven by the plummeting relationship between the Taliban and Islamabad. As Pakistan and Afghanistan trade fire over border disputes and accusations of sheltering militants, India sees an opportunity to fill the vacuum. Gautam Mukhopadhaya, a former Indian ambassador, noted that the two nations now share a “common enemy" in Pakistan, making them “natural allies". By increasing aid, India aims to address security concerns — receiving assurances from Muttaqi that Afghan soil will not be used against India — while maintaining a vital presence in a country where it has historically held significant goodwill.

BANGLADESH AND CHABAHAR

While Kabul sees a windfall, Bangladesh has faced a sharp reduction in aid, with its allocation pegged at just ₹60 crore. This is a significant drop from the ₹120 crore estimated in 2025–26. Officials pointed to the fact that only a portion of previously allocated funds had been utilised, but the cut also mirrors strained bilateral ties following political unrest and protests targeting Indian diplomatic interests in Dhaka.

Perhaps the most significant strategic pause is seen in the Chabahar Port project in Iran, which received no allocation in the 2026 budget. Previously a cornerstone of India’s plan to bypass Pakistan for trade with Central Asia, the project has been hit by the backdrop of renewed US sanctions on Iran. The uncertainty over whether Washington will continue India’s waiver, set to expire in April 2026, has forced New Delhi to halt its investments for the time being. This recalibration across the board suggests that India’s 2026 foreign aid strategy is defined by a hard-nosed assessment of regional stability and international sanctions, prioritising pragmatic footholds over long-standing investment patterns.

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