Budget 2026 skips Chabahar Port funding as US-Iran tensions rise, Bangladesh aid reworked

India reprioritises overseas aid allocations

In the Union Budget 2026-27 presented on Sunday, India unveiled a recalibrated approach to its overseas development assistance, reflecting a realignment of strategic priorities. While the total allocation for the Ministry of External Affairs (MEA) has been increased to Rs 22,119 crore, the portion earmarked for “Aid to Countries” has been significantly reduced or redirected, underscoring the “Viksit Bharat” agenda’s focus on fiscal prudence and evolving geopolitical sensitivities.

Chabahar funding suspended amid US sanctions

The most notable change is the complete omission of funding for the Chabahar port project in Iran. In previous years, allocations had been consistent—Rs 400 crore was earmarked in the 2025-26 Revised Estimates—but for 2026-27, the funding has been reduced to zero. This comes despite the landmark 10-year agreement signed in 2024 for India to operate the Shahid Beheshti terminal.

Analysts suggest that the decision reflects caution in the face of renewed geopolitical friction with the United States. With the Trump administration recently announcing a 25 per cent tariff on nations trading with Tehran and India’s current sanctions waiver due to expire on 26 April 2026, New Delhi appears to have paused fresh financial commitments to the Iranian connectivity hub.

Shifts in South Asian engagements

The budget also highlights a recalibration of aid within India’s immediate neighbourhood. Bangladesh has seen its allocation halved from Rs 120 crore to Rs 60 crore, following a period of strained bilateral relations under Dhaka’s interim government and reported challenges in project execution.

By contrast, other neighbouring countries have received notable increases:

Bhutan: Aid rises by 6 per cent to Rs 2,289 crore, primarily for hydropower and infrastructure projects.

Nepal: Allocation increases by 14 per cent to Rs 800 crore, reaffirming India’s focus on regional connectivity.

Sri Lanka: Aid has been raised by one-third to Rs 400 crore to support long-term economic recovery.

Strategic and humanitarian outlays

Assistance to Afghanistan has been maintained at Rs 150 crore, focused on humanitarian relief and completing ongoing community initiatives, despite political complexity in Kabul.

In the Indian Ocean region, allocations reveal a nuanced strategy: aid to the Maldives has been reduced by 8 per cent to Rs 550 crore, while Mauritius receives a 10 per cent increase to match that figure.

This “neighbourhood-first” budget demonstrates a pragmatic approach by India, balancing consolidation of traditional alliances with strategic caution in regions affected by global sanctions and political volatility.