Step 1: Background of the Indus Water Agreement
- The Indus Waters Treaty was signed in 1960 between India and Pakistan, with the World Bank as a mediator.
- The treaty was designed to allocate the use of water from the six rivers of the Indus basin between the two countries.
Step 2: Key terms of the Treaty
- The three western rivers — Indus, Jhelum, and Chenab — were allocated to Pakistan.
- The three eastern rivers — Ravi, Beas, and Sutlej — were allocated to India.
- India retained limited rights for irrigation, power generation, and transport on the western rivers, but without altering their flow.
Step 3: Analyzing the options
- Nepal: Not related to this treaty.
- Bhutan: No such treaty with Bhutan in 1960.
- Pakistan: Correct, the treaty was signed between India and Pakistan.
- Afghanistan: Incorrect, no such agreement in 1960.
Step 4: Conclusion
Thus, India signed the Indus Water Agreement in 1960 with Pakistan.
\[
\boxed{\text{Correct Answer: (C) Pakistan}}
\]