New Delhi: While the Maldives and Sri Lanka are the only South Asian countries set to receive increased foreign aid from India this year, officials argue that budget papers may not fully reflect New Delhi’s actual spending on foreign grants and loans.
The Ministry of External Affairs (MEA)’s total budget allocation for 2025-26 has decreased by 7.3% compared to last year’s projected spending. The drop is sharper – 18% – when measured against the revised estimates for 2024-25.
However, MEA sources contend that this decline does not present the full picture, as no provision has been made this year for redeeming any guarantee for default of the lines of credit given by the Exim Bank of India.
Over the past two years, these allocations accounted for the bulk of increased spending – both projected and actual – according to budget data.
In 2023-24, the MEA transferred Rs 9,013.72 crore to the Sovereign Guarantee Redemption Fund, while its total expenditure for the year stood at Rs 28,914.51 crore.
In 2024-25, the final estimate for this provision was Rs 4,383.40 crore, a significant portion of the ministry’s revised annual expenditure of Rs 25,277 crore.
No allocation has been made under this head for 2025-26, but sources note that provisioning for the Exim Bank is a dynamic process and may be undertaken later if needed.
MEA sources insist that, excluding the Exim Bank provision, this year’s allocation actually represents a 15.45% increase over last year’s budget estimates.
A similar pattern appears in the “Grants and loans to foreign governments” chapter, where allocations for foreign aid managed by the finance ministry and the foreign office are combined.
The finance ministry also has a separate budget head for interest payment equalisation under the Indian Development and Economic Assistance Scheme, which funds soft loans – a key instrument for enhancing India’s strategic presence abroad.
This head was allocated Rs 2,350 crore in 2023-24 and Rs 3,849 crore in 2024-25, but has been reduced to just Rs 27.10 crore this year.
Sources reiterated that the lack of this allocation does not rule out adjustments later. Disbursements for development projects often hinge on the pace of implementation, which is shaped by conditions on the ground.
With only Rs 27.10 crore reflected under this section, the overall budget for Grants and Loans to foreign governments in the Indian government has dropped by 28.4%, from Rs 9,621.90 crore in 2024-25 to Rs 6,886.79 crore in 2025-26.
The decline is even sharper compared to last year’s revised figures, which had raised the allocation to Rs 11,035.71 crore.
The allocation for foreign aid this year is just 0.13% of India’s total expenditure budget.
However, when just looking at the MEA’s portfolio, the allocation for foreign aid has increased by about 20% to Rs 6,750 crore this year.
Around half of the increase of Rs 1,082 crore is due to a sharp rise in the category for international training programmes.
South Asia, historically the primary recipient of India’s foreign aid, now accounts for 57.65% of the total aid allocation this year – the highest share since 2018-19.
The six neighbouring South Asian states have a combined allocation of Rs 3,970 crore for this year, reflecting an increase from the 2024-25 budget estimate but a decline from the revised estimate, which had raised the allocation during the mid-year revision.
Bhutan, as usual, has the largest share in foreign aid, but with only a slight increase compared to the budget estimates for 2024-25 to Rs 2,150 crore. The sharpest rise was for the Maldives, which increased from a projected spending of Rs 400 crore last year to Rs 600 crore this year.
Sri Lanka’s allocation has increased modestly by Rs 55 crore, bringing it to Rs 300 crore, while Nepal and Bangladesh’s allocations remain unchanged from last year, with Rs 700 crore for Nepal and Rs 120 crore for Bangladesh.
In the broader neighbourhood, Myanmar and Mauritius have received substantial allocations of Rs 350 crore and Rs 500 crore, respectively.
India’s annual support of Rs 100 crore for the strategic Iranian port of Chabahar remains unchanged.
Meanwhile, the Seychelles, listed under its own category, has seen a sharp decline, with its aid allocation reduced by half to Rs 19 crore.