In the contemporary globalized world, the lines between economics and foreign policy are becoming increasingly blurred. A nation’s budget, while primarily aimed at directing domestic economic growth, must reflect its foreign policy priorities and strategic interests. Economic decisions, such as trade agreements, investment policies, and infrastructure development, have significant geopolitical implications.
Moreover, budget allocations for defense, diplomacy, and most importantly, foreign aid directly reflect a country’s commitment to its foreign policy goals. Prime Minister Modi’s “Neighbourhood First” policy, introduced during his first term, has emerged as a cornerstone of India’s foreign policy. Recognizing the significance of this policy, successive budgets have reflected a growing focus on aid allocation to neighboring countries, making it a subject of keen interest for policymakers, academics, and observers.
The emphasis on regional engagement is evident in the increased budgetary allocations to the Ministry of External Affairs (MEA) in recent years. In 2024, the overall MEA budget saw an increase from INR 18,050 crore to INR 22,154 crore. The budget is categorized into key areas: maintaining diplomatic missions, fostering international cooperation (including aid and multilateral engagements), promoting cultural and academic exchanges, providing citizen services, and fulfilling other administrative expenses.
This allocation strategy reflects the diverse priorities of Indian foreign policy, encompassing diplomatic outreach, economic diplomacy, cultural diplomacy, and citizen welfare. Notably, a significant portion of the budget is allocated to “Other Central Sector Expenditure,” highlighting the multifaceted nature of India’s foreign policy engagements beyond traditional diplomatic channels.
While India emphasizes the non-reciprocal nature of its aid to neighbors, focusing on building ties rather than seeking favors, the reality is more nuanced.
For instance, the 2024-25 Indian budget reveals a nuanced approach to foreign aid allocation, reflecting the interplay of political and geopolitical factors. Changes in bilateral relations, regional dynamics, and emerging security concerns can significantly influence aid allocation decisions. Aid to a particular country may be increased to strengthen ties during periods of political alignment or to address specific challenges, such as natural disasters or economic crises. For instance, aid to Sri Lanka, Mauritius, Seychelles, and Nepal significantly increased for the Budget 2024-25. Conversely, aid may be adjusted or redirected in response to perceived shifts in a country’s foreign policy stance or emerging security threats.
For instance, aid to countries like the Maldives, Myanmar, and Bangladesh has been reduced, potentially influenced by perceived political shifts in the country as well as geopolitical alignments. This suggests that while non-reciprocity is a stated objective, geopolitical factors inevitably play a role in shaping India’s aid distribution to neighboring countries.
For the 2025 Union Budget, it is expected that it will likely reflect India’s evolving foreign policy priorities, particularly in light of recent geopolitical shifts and economic challenges.
While the “Neighbourhood First” policy remains a cornerstone, its implementation is likely to become more nuanced and pragmatic. Given the complexities in the region, particularly the crises in Myanmar and Bangladesh, aid allocation is expected to be more carefully calibrated, considering factors like political stability, regional security, and India’s strategic interests. The situation in Myanmar, in particular, will likely require careful consideration, with a focus on providing humanitarian assistance while maintaining a balanced approach that addresses security concerns and promotes a peaceful resolution to the conflict.
It is expected that the budget is likely to witness an expansion of India’s interests beyond the Indian Ocean Region to encompass the broader Indo-Pacific, with increased attention to Southeast Asian countries. This will likely involve enhanced connectivity initiatives, deeper economic partnerships, and strengthened defense cooperation with key regional players. For this the budget will likely prioritize initiatives that support economic growth, attract foreign investment, and facilitate trade.
The “Make in India” initiative will likely receive continued support, with a focus on attracting investments in key sectors and enhancing manufacturing capabilities. Investments in infrastructure projects, both within India and in neighboring countries, will be crucial for enhancing connectivity and facilitating trade. This could include support for projects under the “Project SAGAR” and “Project Mausam” initiative, which aims to strengthen cultural and economic engagement with countries in the Indian Ocean region as well as to protect maritime boundaries.
Given the geopolitical complexities in Myanmar, the government is likely to prioritize the completion of the Kaladan Multi-Modal Transit Transport Corridor Project (KMMTTC Project) as a key element of its engagement strategy under India’s Act East Policy. Increased budgetary allocation will be crucial for overcoming any remaining challenges, such as security concerns, infrastructure development, and ensuring the project’s long-term sustainability. Recently, the Indian Ambassador to Myanmar visited Sittwe Port and met the Rakhine Chief Minister to discuss bilateral development cooperation projects signaling a renewed focus on this crucial infrastructure initiative. This focus on the KMMTTC Project underscores India’s commitment to strengthening connectivity and economic cooperation with Myanmar and Southeast Asian countries, while also serving as a counterbalance to China’s growing influence in the region.
Furthermore, given the evolving security landscape, particularly in the Indo-Pacific region, the defense budget is likely to receive a significant boost. This increased allocation will likely be utilized for modernizing the armed forces, enhancing border security, and supporting defense exports, including the promotion of indigenous defense technologies like the BrahMos missile. It is important to note that India’s defense cooperation with Southeast Asian nations witnessed a significant deepening in 2024, reflecting a proactive engagement strategy in the Indo-Pacific. India elevated its relationship with Singapore to a “Comprehensive Strategic Partnership” and with Vietnam, India reviewed progress under the Joint Vision Statement on Defense Partnership towards 2030 and extended a $300 million Line of Credit for defense projects, along with regular conduct of joint military exercises.
India actively promoted defense exports, with the delivery of the first batch of BrahMos missiles to the Philippines. In addition, platforms like the India-Indonesia Joint Defense Cooperation Committee, the India-Vietnam Security Dialogue, and the India-Philippines Maritime Dialogue facilitated discussions on maritime security, counter-terrorism, and regional challenges. By strengthening defense ties with Southeast Asian nations, India aims to maintain a rules-based order in the region, promote maritime security and freedom of navigation and most importantly, counter the influence of other major powers.
Even the BRO is expected to receive more allocations with the Indian government’s decision to implement a new system for border crossings along the India-Myanmar border, replacing the previous Free Movement Regime (FMR). This new system aims to enhance border security while allowing limited movement for residents within 10 kilometers of the border. The residents will require a “border pass” issued by the Assam Rifles to cross the border. For this, eight pilot entry/exit points will be operational initially, with 35 more to be added in phases.
Therefore, the budget is expected to allocate more funds to the Assam Rifles to enhance their operational capabilities, training and capacity building, intelligence gathering capacities and also improve infrastructure of border outposts. Also the government’s decision to build a fence along the border, with 30 kilometers already completed, will require more funds. Here it is also essential to establish mechanisms for providing humanitarian assistance to communities affected by the conflict in Myanmar.
Finally, one of the hallmarks of Modi’s foreign policy has been a strong emphasis on engaging with the Indian diaspora. The focus on diaspora engagement and cultural diplomacy is expected to continue in the upcoming budget, reflecting its crucial role in enhancing India’s soft power and fostering goodwill worldwide. While MEA can allocate a specific budget for diaspora engagement initiatives, a separate “Diaspora Engagement Fund” can be created to support innovative projects and initiatives proposed by diaspora organizations and individuals, such as scholarships for Indian students abroad, cultural exchange programs, and community development projects in India.
Here, India can also learn from China’s successful strategies in engaging with its diaspora, particularly through economic incentives and patriotic rhetoric, to contribute to its economic and technological development. The Indian diaspora, with its significant presence in knowledge-based industries, will be able to contribute to India’s transformation into a global technology leader, mirroring China’s success in manufacturing. Therefore, it’s time for India to reap ‘diaspora dividends’ which hold immense potential to contribute to India’s growth and development.
In conclusion, the 2025 budget is likely to reflect India’s evolving foreign policy priorities, with a focus on economic growth, regional connectivity, and a nuanced approach to engagement with neighboring countries. The budget will likely play a crucial role in shaping India’s role in the Indo-Pacific and advancing its national interests on the global stage. Enhancing connectivity through projects like the KMMTTC Project and strengthening defense cooperation with regional partners are key priorities. For this, effective coordination between different ministries (MEA, Defense, Finance, Commerce) is crucial for successful implementation of foreign policy objectives.
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.