India pledges INR 4 Billion aid to Sri Lanka in 2026-2027 Budget

The Government of India has proposed ₹4 billion in grants and loans to Sri Lanka through its 2026–2027 Budget.

The budget also focuses on boosting India’s manufacturing sector to create jobs for millions entering the domestic workforce each year.

Finance Minister Nirmala Sitharaman on Sunday (February 1) outlined plans for structural reforms, strengthening the financial sector, and investing in advanced technologies, including artificial intelligence.

The Modi government aims to raise manufacturing’s contribution to GDP from under 20% to 25% to support employment. The Indian economy is projected to grow 7.4% in the current financial year, with inflation near 2% and a fiscal deficit of 4.4% of GDP.

The budget also reshaped India’s overseas development assistance. Aid to Bangladesh is cut by half to INR 600 million, while no funds are allocated for Iran’s Chabahar port project despite a 10-year agreement signed in 2024.

Bhutan remains the largest recipient at INR 22.8 billion, Nepal’s aid rises 14% to INR 8 million, and Sri Lanka’s allocation increases by one-third to INR 4 billion, supporting Sri Lanka’s post-crisis recovery.

Aid to the Maldives drops 8%, Mauritius rises 10%, and funding for Africa and Eurasian countries stays largely steady.

The total “Aid to Countries” allocation under the Ministry of External Affairs rises slightly to INR 56.8 billion, reflecting India’s “neighbourhood-first” approach with adjustments for geopolitical realities. The MEA’s total expenditure for 2026–27 is estimated at INR 221 billion.

On domestic finances, the government plans to reduce its debt-to-GDP ratio to 55.6% from 56.1%, maintain a fiscal deficit of 4.3%, and borrow INR 17.2 trillion (US$187.6 billion) from bond markets in the new financial year.