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

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 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 like Bangladesh.

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, with 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.

Budget Details (in Cr)
Bhutan: Rs 2288.55
Afghanistan: Rs 150 (🔼Rs 50)
Bangladesh: Rs 60 (⬇️Rs 60)
Nepal: Rs 800 (🔼Rs 100)
Sri Lanka: Rs400 (🔼Rs 100)
Maldives: Rs 550 (⬇️Rs 50)
Myanmar: Rs 300 (⬇️Rs 50)
Mongolia: Rs 25 (🔼Rs 20)
Mauritius: Rs 550 (🔼Rs 50)
Seychelles: Rs 19 https://t.co/nauvMs0C4Q

— Sidhant Sibal (@sidhant) February 1, 2026

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

What stands out in the budget is the threefold increase in aid to Afghanistan, which rose to Rs 150 crore. This 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 so as to protect regional interests and counterbalance Pakistani influence. The diplomatic evolution reached a milestone in October 2025, when India hosted a week’s official visit by the Taliban’s foreign minister, Amir Khan Muttaqi.

During this groundbreaking trip, Muttaqi not only met external affairs minister S Jaishankar to discuss trade and economic ties but went on a symbolic trip to the Darul Uloom Deoband seminary, highlighting a willingness to engage with the ideological roots of the region. Later, Jaishankar said India is committed to the “sovereignty, territorial integrity, and independence of Afghanistan”, while Muttaqi termed India a “close friend”. 

In the latest, the Taliban-appointed diplomat Noor Ahmed Noor arrived in New Delhi to take charge as charge d’affaires at the Afghan embassy. While India still does not officially recognise the Afghan Taliban government, Noor’s appointment — he 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.

Experts said India’s outreach is driven by the tensions between the Taliban and Pakistan. As the two countries trade fire over border disputes and accusations of sheltering militants, New Delhi sees an opportunity to fill the vacuum. Hence, 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

Bangladesh, meanwhile, has faced a sharp reduction in aid with its allocation pegged at just Rs 60 crore. This is a significant drop from the Rs 120 crore estimated in 2025-2026.

Officials said only a portion of previously allocated funds had been used, but the cut also mirrors strained bilateral ties following political unrest and protests targeting Indian diplomatic interests in Dhaka.

Another significant strategic pause is seen in the Chabahar Port project in Iran, which received no allocation in the 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 if Washington will continue India’s waiver, set to expire in April, has forced New Delhi to halt its investments for the time being.

(With agency inputs)