In a bold move signaling strained ties, India has slashed its financial support to Bangladesh by 50% in the 2026-27 Union Budget, dropping from Rs 120 crore last year to just Rs 60 crore. Finance Minister Nirmala Sitharaman announced the decision on January 31, 2026, as part of a broader focus on domestic priorities like manufacturing and employment. The cut comes against a backdrop of escalating diplomatic friction, including reports of violence against minorities—particularly Hindus—in Bangladesh since the ouster of former Prime Minister Sheikh Hasina in 2024.

India's External Affairs Ministry has voiced strong concerns over attacks on Hindu temples, homes, and businesses, urging Dhaka's interim government under Muhammad Yunus to act decisively. Tensions deepened after Hasina sought refuge in India, prompting Bangladesh to demand her extradition and cozy up to Pakistan, while recent border clashes and trade barriers have further chilled relations.

The reduction isn't standalone. India also skipped funding for Iran's Chabahar port amid U.S. sanction risks, while ramping up aid to allies like Bhutan (Rs 2,288 crore) and Sri Lanka. This realignment underscores New Delhi's strategy to prioritize reliable partners in South Asia. Security issues prompted India to withdraw diplomats' families from Dhaka ahead of Bangladesh's February elections, highlighting the rift's depth.

Experts see the aid cut as leverage to push Bangladesh on minority protections and regional stability. Past collaborations, such as joint river projects and power sharing, now face uncertainty without steady funding. As Bangladesh heads to the polls, outcomes could either ease or exacerbate the divide. India watchers predict this may prompt Dhaka to recalibrate its foreign policy, potentially reviving dialogue on shared borders and trade.