India halves development aid to Bangladesh amid strained relations

India has slashed its development assistance to Bangladesh by 50 percent in the Union Budget for the 2026–27 fiscal year, reflecting a sharp deterioration in bilateral ties following the ouster of former prime minister Sheikh Hasina.

The budget, presented in parliament on February 1, allocates Rs60 crore in aid to Bangladesh for the next fiscal year starting in April, down from Rs120 crore in FY26. The revised estimate for Bangladesh in the current fiscal has been further cut to Rs34.48 crore, underscoring the prolonged chill in relations.

Officials attribute the steepest reduction in regional aid to a diplomatic freeze between the two neighbours, allegations of attacks on minorities in Bangladesh, and Dhaka’s perceived shift towards closer ties with Pakistan.

Bhutan emerged as the largest recipient of Indian development assistance, with its allocation rising by Rs138 crore to Rs2,288 crore in FY27 from Rs2,150 crore in the previous budget. Nepal followed with Rs800 crore, while the Maldives and Mauritius were each allocated Rs550 crore.

Aid to the Maldives fell by Rs50 crore to Rs500 crore, while assistance to Mauritius increased by 10 percent. Myanmar’s allocation dropped 14 percent to Rs300 crore.

Signalling a continued warming of ties with Afghanistan, India raised its aid allocation to Kabul to Rs150 crore in FY27 from Rs100 crore in FY26. Sri Lanka was allocated Rs400 crore, while Myanmar received Rs300 crore. Aid to Afghanistan, Sri Lanka and Nepal saw marginal increases.

In a notable shift, the budget made no allocation for the Chabahar port project in Iran, breaking a pattern from recent years. The project had received Rs100 crore in last year’s budget, which was later increased to Rs400 crore in the revised estimate.

Overall, the Ministry of External Affairs was allocated Rs22,118 crore for FY27, up from a budget estimate of Rs20,516 crore and a revised estimate of Rs21,742 crore in the current fiscal. The overseas development partnership portfolio stood at Rs6,997 crore, accounting for just over 31 percent of the MEA’s total allocation.

Of this amount, Rs4,548 crore has been earmarked for India’s immediate neighbours, to be used for projects ranging from large infrastructure initiatives such as hydroelectric plants and power transmission lines to small-scale community development programmes.

According to budget documents, India’s total foreign grants amounted to Rs5,685 crore in FY26.