The Union Budget 2025-26 reflects a shift, prioritizing foreign policy objectives amidst a backdrop of global headwinds and economic uncertainties. The budget reflects a strong alignment with India’s foreign policy objectives, as outlined in my previous article for the Sunday Guardian, dated 26 January. These objectives include prioritizing regional engagement through the ‘Neighbourhood First’ policy, strengthening ties with maritime partners in alignment with ‘SAGAR’ initiative, and leveraging the Indian diaspora as a key instrument of soft power.
CLOSER LOOK AT MEA ALLOCATIONS
The allocation of Rs 20,516 crore to the Ministry of External Affairs (MEA) in the Union Budget 2025-26, while lower than previous estimates, still reflects the government’s commitment to ‘Foreign Affairs’ in the budget. However, it must also be noted here that MEA still receives less than one percent of the total budget. The total establishment expenditure by the Centre for MEA is approximately similar to the previous year i.e Rs 7552 crores. Under the heading of Central Sector Schemes/projects, the budget for support to international training/programmes have been reduced, whereas aid to specific countries and aid for cultural and heritage projects have increased.
Further, in earlier budgets, a significant portion of the budget was allocated to “Other Central Sector Expenditure,” which includes expenditures on international and regional organisations as well as other discretionary expenditures, but this the allocation is reduced, making it at par with allocations to total central sector schemes/projects.
Here, it is also important to note that no allocation has been made under the Sovereign Guarantee Redemption Fund, which constituted a bulk of share in previous budgets. Even last year, there was a significant expenditure under this head in the revised budget and eventually it is expected that allocations will be made in the revised budget of FY26. Finally, the budget for developmental heads, such as general services, social and economic services witnessed a sharp decrease from previous year’s revised estimates.
KEEPING NEIGHBOURS CLOSE
In line with “Neighbourhood First Policy”, the neighbouring countries are the primary recipient of aid with the total aid increased to ₹5108 crores. The shifts in the allocation reflects the changing dynamics in the neighbourhood. Bhutan yet again holds the largest share of aid. In the past decade, Bhutan has been the major recipient of India’s foreign aid and India has committed itself to financially support Bhutan’s Five Year Plans since the launch of its first plan in 1961. The visit of Bhutanese PM Tshering Tobgays’s in October 2024 reiterated the close ties between the two countries, with an aim to push for sustainable growth via promotion of green hydrogen and hydropower projects. However, what makes this country high on the priority list is its strategic location.
Given the ongoing complexities in Bangladesh, the aid to the country continued to be the same. In 2024, the Sheikh Hasina government was pushed out of the country and Muhammad Yunus became the head of Bangladesh’s interim government. Bangladesh sits in the strategic junction between India and Northeastern states as well as its presence in Bay of Bengal. While it is crucial that India must maintain its ties with the government in power, the aid allocations remain the same.
Similarly for Nepal, the budget didn’t make any change in aid allocations. Nepal is sandwiched between two major powers, India and China and given that PM Oli is often portrayed as pro-China (with his first visit to China), India must step up its engagement to counter growing Chinese influence.
For Afghanistan, the aid increased in comparison to the revised budget (Rs 50 crores) but decreased in comparison to budget estimates of previous year (Rs 200 crores). Recently, Indian foreign secretary Vikram Misri met acting Taliban Foreign Minister Amir Khan Muttaqi in Dubai, the first high level diplomatic meeting with Taliban leadership since the takeover in 2021. India ensured its commitment to engage in development projects and aimed to address its security concerns. The Afghan minister ensured that its territory will not be used against India’s security interest. Also the recent rift between Pakistan and Afghanistan, will certainly provide a ground for fostering relations in India’s favour.
Myanmar represents an interesting case, where aid allocation increased in comparison to budget estimates of previous year (Rs 250 crores) – which was expected, but are lower than revised estimates (Rs 400 crores). The aid allocation for this year is set at Rs 350 crores, which is expected to increase in the revised budget, given the ongoing instability in the country and India’s ambition to maintain peace and stability across borders as well as uphold the ambitions of Act East Policy.
As stated in the previous article, both the Border Roads Organisation (BRO) and Assam Rifles received increased allocation, given the security concerns in the north-east region and the decision to fence the borders. Along with this, if we reflect on the allocation for the Ministry of Development of North East Region (MDoNER), which received a significant boost from the revised estimates of 2024-25, we can understand India’s growing priorities to the northeast region as well as Act East Policy.
FRIENDS ACROSS THE SEA
As expected, the budget 2025-26 focussed on maritime countries to uphold the principles under the “SAGAR” initiative (Security and Growth for All in the Region). Maldives received a significant boost with an allocation of Rs 600 crores, signaling a renewed emphasis on strengthening bilateral ties. In the first half of 2024, the relations between the two sides strained and President Mizzu’s visit to China showcased a pro-China stand. The relations improved with President Mizzu’s visit to India, during which he recognised India as a key development partner and upheld the vision for Comprehensive Economic and Maritime Security Partnership.
Sri Lanka too received aid allocation of Rs 300 crores, an increase from previous years budget estimates. In his latest visit to India, Sri Lankan President Anura Kumara Disanayaka appreciated India’s support during the economic crisis of 2022 and affirmed that Sri Lanka territory will not be used against India’s interests. Sri Lanka’s strategic location in the Indian Ocean makes it crucial for India’s maritime security interests. Further, both sides aimed to focus on expanding trade and investment ties, boost connectivity and most importantly, focus on energy cooperation.
For Mauritius, the aid allocation is approximately ₹500 crores, which is an increase from the previous budget estimates (₹370 crores), but slightly reduced in comparison to revised (₹576 crores). This also reflects India’s efforts to counter growing Chinese influence in the region and strengthen its own strategic partnerships. It’s only Seychelles among maritime neighbours, whose budget allocation decreased to Rs 19 crores.
RELATIONS WITH GLOBAL SOUTH
African and Eurasian countries received an increase in aid allocation this year, Rs 225 crores and Rs 40 crores respectively. India’s engagement with Africa is not merely driven by economic interests but also by a shared history of cooperation and a commitment to South-South solidarity. And in the 21st century, both nations have focussed on enhancing economic and maritime security cooperation along with support to developmental projects to strengthen people to people connect. With the growing focus on green energy, access to Africa’s critical resources like minerals and energy is crucial for India’s economic growth. It is also important to highlight that the African Union became part of G20 under India’s leadership, which suggests India supports the rise of Africa for building the voice of the global south.
Similarly, the Eurasian countries, particularly those in Central Asia, are of significant strategic importance to India, especially post-Ukraine crisis. This year’s budget has doubled the aid allocated to Eurasian countries. These countries are rich in natural resources which are of interest to India for energy. While India’s trade with Central Asia is expanding, there are connectivity issues. Initiatives like the International North-South Transport Corridor (INSTC) and the Chabahar Port in Iran are critical, but the budget allocations did not increase for the latter.
In the context of Latin American countries, aid allocation increased to Rs 60 crores, an increase in comparison to budget estimates of previous year (Rs 30 crores), but are lower in comparison to revised budgets (Rs 90 crores). While there is no direct connectivity and trade remains limited, India needs to actively engage with Latin American countries as a key source of lithium and copper, two essential materials needed for the shift to green energy.
CONCLUSION
In conclusion, the Union Budget 2025-26 reflects India’s evolving foreign policy priorities, with a focus on economic and strategic interests and soft power diplomacy. The “Neighbourhood First” policy remains a cornerstone, its implementation is likely to become more nuanced and pragmatic in coming years. For the success of these initiatives, the MEA will need to adapt to the changing global landscape, prioritize its efforts, and leverage its resources effectively to advance India’s interests and contribute to a more peaceful and prosperous world.
By carefully considering these factors and implementing a well-defined budget strategy, India can effectively advance its foreign policy interests, strengthen its regional and global influence, and contribute positively to the evolving geopolitical landscape.
Dr Cchavi Vasisht is Senior Research Associate with Chintan Research Foundation.