India's foreign-aid strategy is a crucial component of its broader diplomatic efforts to counter China's expanding influence in the region. This strategy involves providing significant financial assistance to neighbouring countries, particularly in South Asia and the Indian Ocean.

For instance, India has committed over $4 billion in aid to Sri Lanka in 2024, aiming to support the island nation during its severe economic crisis while also countering China's Belt and Road Initiative (BRI) in the region.

This approach allows India to position itself as a reliable development partner, offering alternatives to China's often criticized debt-driven projects.

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Bhutan: India’s Closest Ally and Largest Aid Recipient

Bhutan continues to hold a pivotal position in India's foreign policy, particularly as the largest recipient of Indian foreign aid. In the fiscal year 2025-26, Bhutan was allocated ₹2,150 Crores, which, although marginally less than the revised amount of ₹2,543 Crores in 2024-25, underscores India's enduring commitment to its strategic partnership with the Himalayan nation. This financial assistance is crucial for several reasons, including Bhutan's geographical significance as a buffer zone between India and China, and its economic dependence on India. The partnership between the two countries is particularly strong in the area of hydropower projects, which are vital for meeting India's energy needs.

India's continued support for Bhutan reflects its broader regional strategy, centred around the "Neighbourhood First" policy. This policy emphasises development cooperation and shared security interests with neighbouring countries, partly to counterbalance China's growing influence in the region. The recent visit of the Bhutanese Prime Minister to India further solidified commitments to joint infrastructure projects, including initiatives in green hydrogen, highlighting the depth of their collaboration.

Despite the slight reduction in aid, India's allocation to Bhutan remains significant, indicating a strategic optimization of financial resources while prioritizing Bhutan's development and stability. This stability is crucial for securing India's northern frontier and maintaining a strong diplomatic relationship with Bhutan. Overall, Bhutan's unique position in India's regional strategy is reinforced by its status as the largest recipient of Indian foreign aid, reflecting a long-standing partnership that is both economically and geopolitically vital for India.

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Maldives: Strengthening Ties Amid Diplomatic Reset

India has significantly increased its developmental aid to the Maldives, boosting it from ₹470 crore to ₹600 crore in the Union Budget 2025. This substantial rise marks a nearly 28% increase and is the highest percentage increase among South East Asian countries, signalling a diplomatic thaw between the two nations. The improvement in relations comes after a tumultuous period following the election of President Mohamed Muizzu, who initially campaigned on an 'India Out' platform and was perceived to be pivoting towards China.

The same policy of engagement has been applied to other neighbours of the country, like, Afghanistan, Myanmar and Nepal with grand success.

India's strategy also encompasses strengthening strategic partnerships and alliances. The Quad grouping, which includes India, the United States, Australia, and Japan, plays a pivotal role in promoting a free and secure Indo-Pacific region, thereby challenging China's unilateral actions.

Additionally, initiatives like the India-Middle East-Europe Economic Corridor (IMEC) are being pursued as alternatives to China's BRI, with support from G7 nations.

India's "Necklace of Diamonds" strategy involves expanding naval presence and forging alliances in the Indian Ocean to encircle China and limit its maritime influence.

India's foreign aid is not only economic but also strategic, aiming to enhance maritime security and prevent undue Chinese influence in critical regions. By engaging in development finance and strategic partnerships, India seeks to safeguard its interests while promoting regional stability and security.

This multifaceted approach reflects India's evolving foreign policy, which has shifted from a defensive posture to a more proactive and assertive stance in countering China's expanding footprint.

Agencies