NEW DELHI—India offered $1 billion in economic aid to Afghanistan, the latest sign of tightening ties between the two countries that is likely to raise concerns in neighboring Pakistan.

Wednesday’s announcement came after Afghan President Ashraf Ghani held talks with Indian Prime Minister Narendra Modi during a visit to New Delhi. Both countries have seen their relationship with Pakistan grow tense in recent months, as each accuses it of not doing enough to crack down on terrorists that operate within its borders.

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