— By Prof Shantesh Kumar Singh & Dr Ravi Shankar Raj
India’s Union Budget 2025-26 comprises a strategic approach towards diplomacy that puts focus on promoting regional stability, strengthening bilateral relations with neighbouring countries, African and Latin American countries and strengthening India’s economic support to neighbouring countries to counterbalance China’s rising global clout. The Budget has given an allocation of ₹20,516 crore to the Ministry of External Affairs and ₹5,483 core dedicated to foreign aid, which highlights India’s emphasis on the “Neighbourhood First”, south-south cooperation and security in the maritime sector through the SAGAR (Security and Growth for All in the Region).
India’s aid to some countries has increased while it has declined to others, with such changes largely being a consequence of evolving geopolitical realities, their security considerations, and India’s long-term strategic interests.
Read also: India’s defence budget hiked by 9.5% with focus on modernization, self-reliance
Bhutan: India’s Closest Ally and Largest Aid Recipient
India’s foreign aid most favoured destination Bhutan received an allocation of ₹2,150 crores in fiscal 2025-26, which is marginally less than the revised amount of ₹2,543 crores in 2024-25. Bhutan’s relevance to India’s strategy is unquestioned, despite the reduction, because of its geographical importance and close diplomatic links.
India’s continued financial assistance is also a sign of a long-standing partnership especially in the area of hydropower projects, a critical requirement for Indian energy needs. Bhutan’s economic dependence on India and its strategic location as a buffer between India and China further bolsters the need for sustained partnership. In 2024, the recent Bhutanese prime minister’s visit to India further strengthened commitments surrounding joint infrastructure projects, including green hydrogen projects. The allocation is a clear indication that India is optimising outlays in its finances but is also looking out for Bhutan’s development and stability for securing India’s northern frontier.
Nepal: Sustaining Influence Amid Chinese Competition
Nepal’s increasing engagements with China have not yet affected India’s aid to it which stands at ₹700 crores, signifying a consistent and steady approach. Nepal is a geostrategically important country, the continued investment of India in its development is directed against growing Chinese influence in Kathmandu. However, much of Nepal’s leadership has tilted to Beijing over the years, most prominently when the prime minister, Kharda Prasad Sharma Oli, helmed the government, yet India continues to be Nepal’s largest trade partner and development supporter. Nepal’s stability is directly linked to India’s security and economic interests and therefore continuing to assist Nepal remains an integral part of India’s diplomatic policy.
Maldives: Strengthening Ties Amid Diplomatic Reset
India has ramped up its aid to the Maldives from ₹470 crore to ₹600 crore, the greatest support in years, and has been trying to repair relations that came apart during diplomatic change of course by the new president, Mohamed Muizzu. The strategic maritime position of the Maldives in the Indian Ocean cast a concern for New Delhi in the direction in which it’s pivoting towards China after the electoral victory of Muizzu.
Despite that, there appear to have been recent diplomatic engagements including the visit of the Maldivian defence minister, Ghassan Maumoon, who has reopened relations. India’s increased assistance helps to fulfil India’s maritime security interests and prevent undue Chinese influence in a region important to India’s SAGAR initiative. Hence, the rise in aid to Maldives is a tactical move by India to sustain its footprint in the Indian Ocean and maintain a stable and friendly neighbourhood.
Sri Lanka: Economic Recovery and Strategic Engagement
Sri Lanka’s aid has been increased from ₹245 crore to ₹300 crore in this budget. India stepped in with vital financial assistance, fuel supplies and trade facilitation to help Sri Lanka stabilise its economy after it plunged into its deep-rooted economic crisis in 2022. This increase in aid is in line with India’s push to assert its influence amid Chinese-funded projects in Sri Lanka, like Hambantota Port.
Recent visits of the president, Anura Kumara Dissanayake, to India have demonstrated mutual interest in the area of trade, energy cooperation and maritime security, all of which contribute to strengthening India’s role as a key ally. Moreover, India’s focus on Sri Lanka is in sync with broader regional stability concerns and countering China’s Belt and Road Initiative.
Bangladesh: Stability Amid Political Changes
India has been cautious and steady in its engagement with Bangladesh while aid has remained at ₹120 crore. In 2024 political transition took place in Bangladesh with the fall of the Sheikh Hasina government and this led to the formation of an interim government headed by Muhammad Yunus.
Bangladesh’s importance as a gateway to India’s northeastern states and to the Bay of Bengal makes India’s continued customary financial commitment important. Despite the fact the amount of aid given has not increased, New Delhi remained focused on economic and infrastructure partnerships to maintain stability and prevent foreign inroads in Dhaka.
Afghanistan: Cautious Engagement Amid Taliban Rule
India has taken a measured approach to investing in the Taliban-led government in Afghanistan, reducing its allocation to ₹100 crore. The allocations in this budget are a decline from the ₹200 crore allotted in the previous budget, however, it is an increase from the revised estimate of ₹50 crore.
India has taken a cautious diplomatic engagement and focused on providing humanitarian aid, medical assistance and development support to the Taliban. The geopolitical shifts in Afghanistan have already pushed India to prioritise the trade route via the Chabahar Port in Iran while engaging with Afghanistan in a limited but strategic way to reflect its commitment to alternative trade routes to Afghanistan and Central Asia.
Myanmar: Balancing Instability with Connectivity Projects
Myanmar’s aid is down to ₹350 crore from ₹400 crore in last year’s revised estimate, but higher than the previous budget estimate of ₹250 crore. Political instability after the coup and security issues along India’s northeastern borders have played a part in the reduction.
While India reduced its investment, it is still committed to its key infrastructure connectivity projects like the Kaladan Multi-Modal Transit Transport Project. However, India’s engagement with Myanmar is still guided by the “Act East Policy”, more specifically countering China’s growing footprints in the region under this policy.
India’s Expanding Footprint through South-South Cooperation in the 2025-26 Budget
During the past decade, India has incorporated a deeper commitment to the south-south cooperation in general, and to Africa and Latin America in particular. This growing engagement is reflected in the Union Budget 2025-26 which is providing increasing aid to African nations of ₹225 crores, affirming India’s key role in critical mineral exploration, energy cooperation and economic development.
India’s expanded ties with Africa go beyond the epochal aspects of historic relationships, to strategic access to vital mineral sources critical to India’s energy transition against climate change, and increased trade and maritime security cooperation. The Indian advocacy for the African Union’s inclusion in the G20 during its G20 presidency has represented a push for south-south solidarity and for mutual growth and an equitable global order.
Latin America, which is important for India’s demand for lithium and copper, had seen a decline in the aid of ₹60 crores from the revised estimate of ₹90 crores for last year, though the aid is still high as compared to the initial ₹30 crores. Therefore, the Indian action suggests not a source of disengagement, but rather, a strategic realignment, as India pursues stronger trade partnerships rather than direct financial assistance.
Safeguarding the Indian Ocean: India’s 2025-26 Budget and the SAGAR Doctrine
As India marks a decade since the prime minister, Narendra Modi, launched the SAGAR (Security and Growth for All in the Region) maritime diplomacy initiative, it is now a vital part of India’s foreign policy, with Mauritius at the forefront. India continues its investment in economic cooperation, maritime security and strategic infrastructure through the investment of ₹500 crore to Mauritius, a key partner of the Indian Ocean Region.
The increase is in line with India’s effort to offset China’s footprint in the region, especially as Beijing expands its naval footprint in the Indian Ocean. As India progresses towards the second decade of the SAGAR Initiative, it is keen on leveraging maritime partnerships to secure the corridors of trade and extend its reach in the region for a secure and resilient Indian Ocean region.
India’s 2025-26 Budget as a Strategic Response to Counter China's Influence
The 2025-26 Union Budget shows India taking a proactive step in limiting China’s growing economic and strategic predominance in the key regions. India is strategically strengthening its regional and global presence at the same time without directly challenging Beijing by prioritising aid to neighbouring countries and maritime partnerships.
China’s BRI investments in Sri Lanka, Nepal and Maldives have created concerns regarding economic dependence and sovereignty issues not only for these countries but also increased security concerns for India. In response to these challenges, India has increased aid to neighbouring nations and offered itself as a more sustainable and transparent development partner to these nations by showing its commitment towards the “Neighbourhood First” policy.
India’s commitment in terms of influence was reaffirmed by giving the Maldives, which briefly pivoted towards China, a ₹600 crore aid boost. Likewise, India’s commitment to support Sri Lanka is aimed at straining Beijing’s economic leverage over the island nation. Strategically, the Indian Ocean region is today a key battleground for India and China seeking to achieve strategic influence.
Emulating its SAGAR vision, India’s increase in aid to Mauritius, a maritime hub, reflects its desire for the region not to allow itself to be swallowed up under Chinese military ambitions. India’s Africa and Latin America engagement is a part of a long-term strategy to secure critical minerals, and trade partnerships to counter China’s deep economic penetration beyond South Asia.
Conclusion: A Strategic Budget for Diplomacy and Influence
India’s union budget for the year 2025-26 is a calibrated investment in regional stability and economic diplomacy. While foreign aid allocations to a few countries have decreased due to geopolitical shifts, others have seen an increase in their foreign aid to secure the strategic advantages of India. This budget is in line with India’s Neighbourhood First, SAGAR, south-south cooperation and Act East policies to ensure long-term diplomatic, economic and security dividends.
The expansion of India’s regional and global influence and its role as a key geopolitical player in the emerging world order is not an outcome of coincidence; it has consciously pursued such a strategy billed into the strategic allocation of resources and this budget is a clear reflection of it.
Thus, this India’s Budget this year is not only an economic gesture in terms of New Delhi’s foreign aid, but strategic investments to contain regional instability, help India counter China’s expansionist agenda, and reinforce India’s regional and global standing. This budget therefore symbolizes India’s proactive diplomacy at a time when geopolitical competition is intensifying.
About the authors:
Professor Shantesh Kumar Singh teaches at the Centre for International Politics Organization and Disarmament, School of International Studies, Jawaharlal Nehru University, New Delhi.
Dr Ravi Shankar Raj is a research analyst at the Roger Hansen Institute for Global Interchange of Perspectives, Netherlands.
Disclaimer: The views expressed in the article are the author’s own and don’t necessarily reflect the views of India Sentinels.
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