India increases grant allocation for Nepal in 2026–27 budget

KATHMANDU: India’s Finance Minister Nirmala Sitharaman has announced an increased grant allocation for Nepal in the Union Budget 2026–27, presented today to the federal parliament in New Delhi.

The move underscores New Delhi’s continued commitment to its “Neighbourhood First” policy, prioritizing developmental cooperation and regional partnership with neighboring countries, including Nepal.

According to the budget documents, the Government of India has allocated INR 8 billion (approximately NPR 12.8 billion) in grants for Nepal for the upcoming fiscal year.

Although this amount is slightly lower than the revised estimate of INR 8.3 billion in the previous year, it exceeds last year’s budget estimate of INR 7 billion, signaling sustained support for Nepal’s development agenda.

Grant Focus Areas

The grant to Nepal will be directed toward several priority sectors, including infrastructure development, healthcare, education, cultural preservation, and emergency assistance.

Over recent years, India has provided substantial assistance to Nepal in high-impact areas such as post-earthquake reconstruction, road and rail connectivity, hydropower projects, and cross-border transmission lines, strengthening bilateral ties and regional connectivity initiatives.

Officials from both countries have emphasized that the budgetary allocation will support ongoing and future projects that enhance Nepal’s socio-economic development and bolster integration with regional infrastructure networks.

The grant aligns with India’s strategy to foster sustainable growth in neighboring countries by supporting foundational sectors that have direct impact on livelihoods and economic resilience.

India’s Neighbourhood Allocations

India’s budgetary allocations to neighboring countries reflect varied levels of assistance based on strategic, developmental, and humanitarian priorities. Key allocations include:

• Bhutan: A total of INR 22.8656 billion, comprising INR 17.6664 billion in grants and INR 5.1992 billion in lines of credit—continuing India’s longstanding support for Bhutan’s socio-economic infrastructure.
• Maldives: INR 5.5 billion in full grants, though slightly lower than last year’s INR 6.25 billion allocation.
• Sri Lanka: INR 4 billion in grants, focusing on post-crisis economic support and recovery initiatives.
• Myanmar: INR 3 billion in grants for development cooperation.
• Bangladesh: INR 600 million allocated primarily for infrastructure and connectivity projects.
• Afghanistan: INR 150 million in grants aimed at humanitarian aid and cultural cooperation.

Impact on Nepal–India Development Partnership

The increased grant allocation for Nepal in the Indian budget reinforces the strong developmental partnership between Kathmandu and New Delhi. Indian support has been instrumental in accelerating priority infrastructure projects in Nepal, including improvements to transportation networks, energy facilities, and cross-border linkages that enhance trade and connectivity.

Nepalese development officials have welcomed the budgetary commitment, noting that the funding will contribute to critical sectors that drive economic growth and social well-being. The grant is expected to support ongoing projects while paving the way for new initiatives that align with Nepal’s national development priorities.

Experts say that India’s grant allocation for Nepal reflects a strategic balance between regional cooperation and targeted development support, helping to bridge infrastructure gaps and improve public services.

By directing funds toward areas like health, education, and emergency response, the budget supports Nepal’s efforts to build institutional capacity and enhance the quality of life for its citizens.

Regional Geopolitical Significance

India’s Union Budget 2026–27 highlights its foreign policy emphasis on neighboring nations, particularly through development assistance programs. The ‘Neighbourhood First’ approach aims to promote economic stability, connectivity, and partnership that extends beyond traditional diplomacy to tangible on-ground projects and capacity-building efforts.

For Nepal, the budget allocation not only reinforces bilateral cooperation but also positions the country as a key partner in regional integration frameworks.

Shared infrastructure and connectivity projects between India and Nepal have implications for trade facilitation, tourism, and energy cooperation, contributing to broader South Asian regional development goals.

Economic and Development Perspectives

Analysts indicate that the grant allocation will aid Nepal in advancing its infrastructure and social sectors without adding to its debt burden, as the funds are designated as grants rather than soft loans. The budgetary commitment is expected to enhance Nepal’s fiscal space for development while supporting government efforts to improve service delivery and build resilient infrastructure.

However, experts also emphasize the need for efficient project execution, transparent utilization, and strong monitoring mechanisms to ensure that the allocated funds result in measurable outcomes on the ground. Coordination between relevant ministries in Nepal and India will be crucial to optimize the developmental impact of the grant.

Summary

India’s 2026–27 Union Budget has maintained and increased grant support for Nepal, with an allocation of INR 8 billion, reinforcing developmental cooperation between the two neighboring countries. The funding targets key sectors such as infrastructure, health, education, culture, and emergency support, building on years of collaborative projects.

This allocation underscores India’s strategic emphasis on regional development through its ‘Neighbourhood First’ policy, while contributing to Nepal’s socio-economic transformation and deeper bilateral engagement.