Budget 2026-27: India slashes aid to Bangladesh, skips Chabahar port funding
Diplomatic strains with Dhaka and the US sanctions on Iran shape India’s foreign aid priorities, while Bhutan remains the largest beneficiary
In a significant move, India has sharply cut its financial allocation for Bangladesh in the Union Budget 2026-27, reducing it to Rs 60 crore, half of the Rs 120 crore provided in the previous fiscal year.
The move comes against the backdrop of rising diplomatic tensions over violence targeting minority communities, particularly Hindus in the neighbouring nation, and a marked realignment in Dhaka’s foreign policy toward Pakistan following the ouster of former Prime Minister Sheikh Hasina in 2024.
Attacks on minorities
Earlier this week, the Minister of State for External Affairs Kirti Vardhan Singh, told the Rajya Sabha that India has repeatedly raised concerns over the safety of minorities in Bangladesh, at both political and diplomatic levels, and continues to “monitor” reports of attacks on their homes, businesses, and places of worship.
The ministry also condemned the interim government’s troubling tendency to dismiss such violence as mere personal or political disputes, warning that this rhetoric emboldens extremists and heightens fear among minority communities.
Bangladesh-Pakistan ties
Bangladesh’s current administration has been actively seeking closer ties with Pakistan, a striking shift given the fraught legacy of the 1971 liberation war and its atrocities.
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Since 2024, when Yunus met Pakistani Prime Minister Shehbaz Sharif on the sidelines of a conference in Egypt, expressing a desire to address lingering grievances from Dhaka’s bloody separation from Islamabad, the two countries have become closer. And, Pakistan and Bangladesh have agreed to grant visa-free entry to holders of diplomatic and official passports from the other side.
Cargo vessels have begun operating directly between Bangladesh and Pakistan, and Pakistani carriers Fly Jinnah and Air Sial have secured clearances to launch direct flights in the coming days. Last Thursday, a Dhaka-Karachi service touched down at Jinnah International Airport, restoring non-stop air connectivity between the two countries after a 14-year hiatus.
The growing ties between the two countries come against the backdrop of steadily worsening India-Bangladesh relations since 2024.
No allocation for Chabahar
Meanwhile, breaking from precedent, India has made no allocation for the Chabahar port project in the Union Budget 2026-27, a move seen as a strategic response to fresh US sanctions on Iran. India has been a key partner in developing the port, but Washington’s punitive measures, imposed in September last year, only granted New Delhi a six-month waiver, set to expire on April 26.
Bhutan remains the largest beneficiary of India’s foreign aid, with Rs 2,289 crore earmarked this year, up from Rs 2,150 crore in 2025-26.
Presenting her ninth budget on February 1, Finance Minister Nirmala Sitharaman emphasised manufacturing growth and job creation as central priorities.