Strategic Redeployment of Foreign Aid: India Prioritizes Its Immediate Neighbors Over the Port of Chabahar

In its budget for the Union 2026-2027, the Indian government has allocated 56.8 billion rupees for foreign aid, within a slightly increased overall budget of 221.1 billion rupees for the Ministry of External Affairs. This budget allocation underscores Bhutan's prominent position as the primary beneficiary, receiving 22.8 billion rupees in development aid. Conversely, the budget allocated to Bangladesh has seen a significant reduction to 600 million rupees, a change occurring amid ongoing bilateral tensions and political instability in this bordering nation.

A notable aspect of this budget exercise is the complete absence of funds dedicated to the strategic Chabahar port project in Iran, which had received substantial support the previous year. This financial withdrawal coincides with the tightening of U.S. sanctions against Tehran and uncertainties surrounding the exemptions granted to India, raising questions about the future of this trade corridor to Central Asia. This decision has sparked sharp criticism from the opposition, with former Finance Minister P. Chidambaram suggesting possible external diplomatic pressures influencing New Delhi's decisions.

Despite the withdrawal from Iran, India maintains an active presence in the region with allocations of 4 billion rupees for Sri Lanka, 3 billion for Myanmar, and an increase in aid to Afghanistan, raised to 1.5 billion. These funds, representing nearly 31% of the total budget of the Ministry, are intended for financing major infrastructure projects, ranging from hydropower to transportation networks, as well as community development programs. This strategy reaffirms India's intention to strengthen its regional influence through development partnerships while navigating an increasingly complex geopolitical landscape.