The Budget pipeline and India’s foreign policy ambitions

‘The budget for the Ministry of External Affair deserves closer scrutiny’
| Photo Credit: The Hindu

When the Union Budget is presented every year, most of the public attention often centres on taxation, infrastructure, and defence. In this, however, the budget for India’s Ministry of External Affairs (MEA) deserves closer scrutiny. Last year, the MEA budget saw a rare 23% spike, up from the modest 4% annual increase between 2017 and 2023. Despite efficient Budget utilisation, exceeding 96% of the revised estimates, the MEA remains one of the least-funded Ministries. The MEA’s allocation not only reflects the government’s foreign policy priorities but also its capacity to deliver on its global ambitions and commitments.

The vision of a ‘Viksit Bharat’ by 2047 hinges on sustained global partnerships. Here, India is positioning itself as a global leader: from leading the Global South; strengthening ties with the Association of Southeast Asian Nations; enhancing regional connectivity, engaging with the Quad (India, Australia, Japan and the U.S.) and creating institutions such as the International Solar Alliance and the Coalition for Disaster Resilient Infrastructure.

Impact on plans

Partner countries also expect more from India, requiring a stronger MEA. Countries anticipate timely project delivery, financial support, and diplomatic follow-through. Yet, the MEA’s current budget — just 0.4% of India’s overall expenditure — falls short to deliver on these plans. In 2022, the Parliamentary Standing Committee on External Affairs suggested raising this to 1% of the total budget. While such an increase (approximately 63%) seems unlikely, even a gradual increase to 0.6% or 0.8% would signal intent.

Two areas demand greater budgetary resources to beef up India’s diplomatic clout: economic tools for regional integration and cooperation, and the MEA’s institutional capacity by expanding human resources and research expertise. India’s regional connectivity faced new challenges in 2024, including Bangladesh’s regime change, Myanmar’s instability, strained ties with Nepal, and the Maldives’ “India Out” stance. But visits by Sri Lanka’s President and Bhutan’s Prime Minister bolstered commitments in cross-border projects. Sustaining momentum under the ‘Neighbourhood First’ policy requires economic support, amid China’s growing influence. Enhanced financial backing is crucial for advancing connectivity initiatives in South Asia.

Foreign aid and shifts

Budgetary trends reveal nuanced shifts. India’s aid to foreign countries declined by 10% in 2024-25, while loans to foreign governments, increased by 29%. Approximately 50% of India’s grants is directed to its neighbourhood. Bhutan remained the largest recipient of Indian aid, reflecting historical ties and a new impetus on energy interdependence, including hydropower development and sub-regional grid connectivity. Aid to Bangladesh declined from ₹200 crore in 2023-24 to ₹120 crore in 2024-25, while Sri Lanka saw a 63% increase in budgetary allocation.

A notable shift is the move from outright grants to lines of credit (LoCs), with 45% of the LoCs directed to the neighbourhood, Bangladesh being the largest recipient at $7.86 billion. While LoCs enable sustainable infrastructure financing, they also demand robust disbursement and oversight mechanisms, stretching India’s diplomatic machinery.

Another critical indicator is MEA resources to build institutional capacity. These are less visible but critical catalysts to enable long-term growth, including through a stronger Indian Foreign Service (IFS), supported by an expert research ecosystem.

While the MEA’s training budget saw a 30% increase in 2024-25, overall capacity-building allocations remain insufficient. The IFS remains a chronically understaffed diplomatic corps. Coordination challenges, delayed expansion plans, and limited lateral entry efforts hinder progress.

Last year’s MEA budget allocation for its foreign missions, training programmes, and cultural diplomacy grew by only 7% but key academic institutions such as Nalanda University and South Asian University experienced cuts of 20% and 22%, respectively. While the MEA has invested massively in convening international conferences and dialogues to foster India’s image as a bridging and argumentative power, it must also find more budgetary resources to support policy-relevant and evidence-based research at Indian universities and think tanks.

Need for declassification, digitisation

According to the External Affairs Minister, S. Jaishankar, “Track 1 has been consistently ahead of Track 2 when it comes to diplomacy, foreign policy, and keeping up with the world.” If this is the reality, and “needs change” as the Minister beckoned, the MEA could lead by example by allocating specific resources in the next Budget to accelerate the declassification and the digitisation of hundreds of thousands of its records. Public e-access will help scholars map India’s rich diplomatic history, contest deeply-held myths and get a better grasp of the underappreciated context and constraints that regulate Track 1 decision-making. And in turn, such Track 2 research may also help current MEA decision-makers to learn from past successes and failures, avoid reinventing the wheel, and articulate India’s uniqueness based on the power of historical record, rather than mere political proclamation.

Riya Sinha is Associate Fellow at the Centre for Social and Economic Progress (CSEP), New Delhi. Constantino Xavier is Senior Fellow at the Centre for Social and Economic Progress (CSEP), New Delhi. The views expressed are personal