India has significantly reworked its external aid priorities in the Union Budget for 2026–27, with major cuts for Bangladesh and Iran’s Chabahar port, while continuing strong development support for Bhutan and several neighbouring and partner countries.

According to the budget details, India has reduced its allocation for development projects in Bangladesh by half, bringing it down to ₹60 crore for 2026–27 from ₹120 crore in the previous financial year. The reduction reflects the current strain in India-Bangladesh relations. Ties between the two countries have seen a downturn under the interim government in Dhaka, and New Delhi is now looking to reset the relationship after Bangladesh’s general election scheduled for February 12.

At the same time, the budget has made no allocation for the development of Iran’s Chabahar port in 2026–27. The outlay for Chabahar has been cut to zero, following the impact of US sanctions. In the previous year, the allocation for the port had been revised sharply from ₹100 crore to ₹400 crore for 2025–26. However, for the new financial year, the amount has been reduced to nil. A six-month exemption from US sanctions for the Chabahar port, granted by the Trump administration in 2025, remains valid only until April.

Bhutan continues to remain India’s closest development partner and has once again received the largest share of India’s external aid. The allocation for Bhutan stands at ₹2,288 crore for 2026–27. This is slightly higher than the ₹2,150 crore provided in the 2025–26 budget. As stated in the documents, “Bhutan, a close development partner, again garnered the largest share of the government’s external aid portfolio.”

The Ministry of External Affairs (MEA) has been allocated a total of ₹22,119 crore in the 2026–27 budget. This is an increase compared to the ₹20,517 crore allocated in 2025–26. Of this, the overseas development portfolio accounts for ₹6,998 crore, which is nearly one-third of the ministry’s total budget. This marks a modest rise from the ₹6,750 crore allocated for overseas development in the previous year. These figures have been outlined “according to budget documents.”

Apart from Bhutan and Bangladesh, several other countries and regions continue to receive Indian development assistance. Nepal has been allocated ₹800 crore, while the Maldives and Mauritius have each received ₹550 crore. Sri Lanka has been allotted ₹400 crore. In addition, African nations will receive ₹225 crore, and Latin American countries have been allocated ₹120 crore under the external aid programme.

Overall, the Budget 2026–27 signals a cautious approach by India in its overseas development spending, shaped by geopolitical challenges and evolving diplomatic relationships, while maintaining steady support for key neighbours and long-term development partners.