India slashes aid to Bangladesh by half amid diplomatic tensions

New Delhi cuts Dhaka funding amid strained ties, while Bhutan remains top aid recipient

India slashed its financial assistance to Bangladesh by half in its latest federal budget as diplomatic relations between the two South Asian neighbours remained tense.

India allocated Rs600m (£4.76m) to Bangladesh in its 2026–27 budget as compared with Rs1.2bn (£9.55m) in the previous fiscal year.

The cut comes as relations between New Delhi and Dhaka have deteriorated since political changes in Bangladesh in 2024, alongside reports of violence against minorities, particularly Hindus, and a reorientation of Bangladesh’s foreign policy towards Pakistan.

The Ministry of External Affairs (MEA) told the upper house of parliament it “continues to monitor” reports of attacks on minorities in Bangladesh, including assaults on homes, businesses, property and places of worship, reported NDTV.

“India has consistently raised the matter of safety and security of the minorities with the authorities in Bangladesh, at both political and diplomatic levels on several occasions,” minister of state for external affairs, Kirti Vardhan Singh, said.

He added that the issue was raised by prime minister Narendra Modi during a meeting with Bangladesh’s chief adviser, Muhammad Yunus, on 4 April 2025.

India's Finance Minister Nirmala Sitharaman leaves the Finance Ministry office to present the annual budget to the parliament at the Kartavya Bhawan in New Delhi on 1 February 2026 (AFP via Getty Images)

The MEA also criticised what it described as a “troubling tendency” by Bangladesh’s interim administration to attribute such attacks to personal rivalries or political disputes, warning that this approach “only emboldens the extremists and the perpetrators of such crimes, and deepens the sense of fear and insecurity among the minorities”.

Budget documents showed that while Rs1.2bn was earmarked for Bangladesh in 2025-26, revised estimates indicated that only about Rs340m was likely to be spent. For 2026-27, the allocation was fixed at Rs600m.

India-Bangladesh ties have continued to weaken during this period, with New Delhi restricting tourist visas for Bangladeshis and withdrawing families of Indian diplomats, citing security concerns ahead of elections held on 12 February.

During the same period, Bangladesh pursued closer engagement with Pakistan, a significant shift given the legacy of the 1971 war that led to Bangladesh’s independence.

In late 2024, Mr Yunus met Pakistan’s prime minister Shehbaz Sharif on the sidelines of an international summit in Egypt and called for the resolution of outstanding issues linked to the 1971 conflict. Mr Sharif later said he had a “warm and cordial exchange” with Mr Yunus.

Since then, the two countries have agreed on visa-free travel for holders of diplomatic and official passports, the revival of their Joint Economic Commission – whose last meeting was in 2005 – and the creation of a new Trade and Investment Commission. Direct cargo shipping was resumed, and non-stop air links have been restored after 14 years, with a flight from Dhaka landing in Karachi and Pakistani carriers receiving clearance to begin regular services.

Beyond Bangladesh, the budget reflected wider changes in India’s overseas development assistance. No funds have been allocated for Iran’s Chabahar port project, despite India being a major partner in its development. The allocation, revised to Rs4bn (£38m) for 2025–26, was cut to zero for 2026–27 following fresh US economic sanctions on Iran.

Multidisciplinary artists hold placards during a protest against violent attacks in Dhaka on 23 December 2025 (AFP via Getty Images)

A six-month exemption from these sanctions, granted by Washington, is due to expire on 26 April.

Bhutan remained the largest recipient of Indian foreign aid, receiving ₹2,288 crore in 2026–27, up from Rs21.5bn (£205m) the previous year. Nepal was allocated Rs8bn (£762m).

Allocations to Sri Lanka and Nepal have each risen by Rs1bn (£9.52m), while Afghanistan’s assistance increased by Rs500m (£4.76m) to Rs1.5bn (£14.3m) as India continues cautious engagement with the Taliban-led administration, including reopening its embassy in Kabul.

Aid to the Maldives was reduced by Rs500m (£4.76m) to Rs5bn (£47.6m), while Mauritius has seen a 10 per cent increase to Rs5.5bn (£52.4m). Myanmar’s allocation was cut by about 14 per cent to Rs3bn (£28.6m) amid political instability.

Assistance to African countries remained at Rs2.25bn (£21.4m), funding for Latin America was doubled to Rs1.2bn (£11.4m), and allocations for Eurasian countries dipped slightly to Rs380m (£3.62m).

Overall, the government earmarked Rs56.86bn (£541.5m) for ‘Aid to Countries’ in 2026-27, a modest increase on last year but below revised estimates for 2025-26.

Finance minister Nirmala Sitharaman presented the budget in parliament on Sunday, her ninth, with a focus on manufacturing growth and job creation.