India Bhutan Relations

India Bhutan Relations

This article deals with ‘India Bhutan Relations.’ This is part of our series on ‘International Relations’ which is an important pillar of the GS-2 syllabus. For more articles, you can click here.


Brief History

India and Bhutan have long-standing diplomatic, economic and cultural relations.

  • India’s relations with Bhutan go back to 747 AD when a Buddhist monk Padmasambhava went from India to Bhutan and founded the Nyingmapa sect of Buddhism. Thus, India contributed to the cultural growth of Buddhism in Bhutan.
  • Bhutan came under the control of the British Empire when it lost in the Anglo-Bhutan Wars and was forced to sign a humiliating treaty.
  • When India became independent in 1947, Nehru went to Bhutan to build relations. Bhutan also preferred India over China as, in 1949, when China took over Tibet, it did create tensions and fears of annexation in Bhutan. In 1949, India and Bhutan concluded a Treaty of Friendship.
  • Diplomatic relations between India and Bhutan was established in 1968 with the appointment of a resident representative of India in Thimpu. Before this India’s relations with Bhutan were looked after by the Political Officer in Sikkim.
  • Regular visits between the highest level Government functionaries of both countries have become a tradition. Dr Lotay Tshering, PM of Bhutan visited India in 2018. It is the first overseas visit of PM Tshering after assuming office in 2018. Bhutan was also the first country visited by PM Narendra Modi after assuming office in 2019. The visit reflects the high priority that the Government of India (GoI) attaches to its relations with Bhutan.

Bhutan-India relations are governed by a friendship treaty that was renegotiated in 2007, freeing Thimphu’s external relations from New Delhi, but still subjecting the Himalayan nation’s security needs to supervision.


India-Bhutan Friendship Treaty

  • The Treaty of Friendship was signed in 1949. Terms of Treaty included
    • As per Article-2 of the treaty, India accepted the sovereign and independent status of Bhutan but advised that Bhutan, in matters of defence and external affairs, seek assistance from India.
    • Apart from that, Indian citizens have the same right to employment in Bhutan as Bhutani nationals do in India.
    • There is an open border system under which citizens of India and Bhutan have a right to move into each other’s territory without a visa
  • Treaty was revised in 2007 because Bhutan raised a voice against Article 2 of the treaty. Under the renegotiated Treaty of Friendship, only Defence is guided by India and Bhutan can have independent Foreign Policy.

  • India-Bhutan Trade And Transit Agreement (1972): It provides for duty-free transit of Bhutanese exports to third countries.
  • Treaty of Cooperation in Hydropower and Protocol (2006): Under this, India has agreed to assist the Royal Government of Bhutan in developing a minimum of 10,000 MW of hydropower and import the surplus electricity from this to India.

Importance of Bhutan for India

Strategic importance

  • Bhutan acts as a buffer between India and China.
  • Chumbi Valley is situated at the trijunction of Bhutan, India and China and is 500 km away from the “Chicken’s neck” in North Bengal, which connects the northeast with the rest of the country. China is demanding Chumbi valley from Bhutan which can jeopardise Indian security.
  • After the Doklam standoff, securing Bhutan’s present borders especially its western border is important for India in order to secure Siliguri Corridor. 

To contain insurgency in North-East

  • Bhutan has in the past cooperated with India and helped to flush out militant groups like the United Liberation Front of Asom (ULFA) from the Himalayan nation. In 2003–04, the Royal Bhutan Army launched a mega operation known as Operation All Clear to eliminate militarily ULFA and NDFB cadres in South Bhutan and successfully neutralised 650 insurgents and destroyed 30 insurgent camps.

Political Importance

  • An unstable and restive Bhutan would not only jeopardize India’s investments in that country but also provide a safe haven for anti-India activities and anti-India militant groups.
  • Bhutan is also the only country in the region that joined India in its boycott of Chinese President Xi Jinping’s marquee project, the Belt and Road Initiative. 

Multilateral Cooperation

  • Bhutan is a founding member of the South Asian Association for Regional Cooperation (SAARC). It is also a member of BIMSTEC, World Bank, the IMF, Group of 77 and others.

Commercial Relations

  • The trade between the two countries is governed by the India-Bhutan Trade and Transit Agreement 1972 which was last renewed in 2016. The Agreement established a free-trade regime between the two countries.  The Agreement also provides for duty-free transit of Bhutanese exports to third countries.
  • India has been the major financier of Bhutan’s 5-year plan (for the latest five-year plan of 2018-2023, India has committed ₹4500 crores.)
  • Both countries have committed to jointly develop 10,000 MW of hydropower generating capacity in Bhutan.
  • India is Bhutan’s largest trading partner.   Around 80% of Bhutan’s total imports are from India and India provides a market for 90% of its exports.
  • One-third of Bhutan’s exports to India is electricity. 
  • The government is planning to build a mini dry port in the border town of Phuentsholing to promote export.
  • Indian banks, such as the SBI and Bank of Baroda, have a presence in Bhutan.
  • Bhutanese currency  Ngultrum is officially pegged to the Indian Rupee.


Hydropower Cooperation

  • Hydroelectric power generated by Bhutan is the country’s main export to India.
  • India has helped to finance the dams through a combination of aid and loans and buys excess electricity. Bhutan exports around 45% of its hydropower to India.
  • Both countries have committed to jointly develop 10,000 MW of hydropower generating capacity in Bhutan.
  • Three hydroelectric projects (HEPs)  are already operational. India provided monetary assistance in the form of a 60% grant and a 40% loan for these projects. These projects include
    1. Tala HEP (capacity = 1 GW || Most important project of Bhutan)
    2. Chukha HEP
    3. Kurichu HEP
  • Problems:
    1. India’s power surplus status and the advent of other renewable energies like wind and solar power will make it more difficult for Bhutan to ensure that its hydropower sector becomes profitable.
    2. Bhutan alleges that due to hydro cooperation with India, there is a dominance of Indian firms in Bhutan. It feels that an overwhelming presence of Indian firms in Bhutan has restricted the space of growth for the Bhutanese corporate sector.
    3. Bhutan feels that the Indian firms end up recruiting cheap Bangladeshi labour, as a result of which Bhutanese don’t stand to benefit from the diplomacy.
  • The way forward: In the previous SAARC Summit, India has also pitched for SAARC Electricity Grid which will benefit Bhutan and Bhutanese Electricity can be sold to Bangladesh (which has a huge electricity deficit).

Security Ties

  • The Indian military “is virtually responsible for protecting Bhutan from external and internal threats”.
  • The Eastern Command of the Indian Army and Air Force have integrated Bhutan’s defence into their role and responsibilities.
  • The Indian Military Training Team (IMTRAT) trains Bhutanese security personnel as well.


People to People Cooperation

  • Approximately 4000 Bhutanese are studying in Indian Universities.
  • India-Bhutan Foundation was established (in 2003) with the aim of enhancing people to people exchanges in focus areas like education, culture, scientific and technical research and environment protection.
  • About 60,000 Indian nationals are living in Bhutan, employed mostly in the hydroelectric power and construction industry.


Other aspects of cooperation

  • Project Dantak: Since 1961, Border Roads Organisation (BRO) has run Project Dantak. Under this, the BRO provides for roads construction, telecom works, colleges, schools and other infrastructure.
  • India is also assisting Bhutan in the establishment of an E-Project covering all the 20 districts of Bhutan.
  • PM Narendra Modi has coined the idea of B2B as ‘Bharat to Bhutan’ for building effective and renewed bilateral relationship.

Issues / Irritants

Although the older Bhutanese generation looked to India with gratitude, the newer generation tends to look more deeply – and with more dissatisfaction – at the situation.

  • Doklam Crisis (73-day India-China stand-off In 2017 ): Doklam, or Donglang in China, is an area comprising a plateau and a valley at the trijunction between India, Bhutan and China. It is surrounded by the Chumbi Valley of Tibet, Bhutan’s Ha Valley and Sikkim. Despite several rounds of engagement between China and Bhutan, the dispute between the two over Doklam has not been resolved. It flared up in 2017 when the Chinese were trying to construct a road in the area, and Indian troops, in aid of their Bhutanese counterparts, objected to it resulting in the stand-off. Doklam is strategically located close to the Siliguri corridor, which connects mainland India with its north-eastern region. The corridor, also called Chicken’s Neck, is a vulnerable point for India. But many Bhutanese feel that why they should suffer for protecting Indian interests. 
  • India imposing itself: Bhutan cant solve their boundary dispute with China. Bhutan has three disputed regions with China ie Doklam Plateau, Jakarlung and Pasamlung. In 2013, India stopped all loans, subsidies and aid in retaliation for starting discussions with China for settling their boundary dispute without taking Indian consent.
India Bhutan Relations
  • Bhutan had decided to withdraw from the BBIN Motor Vehicle Agreement for the reason that it would adversely affect its environment and its sovereignty. 
  • Bhutan has also stopped free tourist access to Indians in 2020.
  • Imposing behaviour of India: Bhutanese people are raising voices against increasing Indianisation. Eg: Under Project Dantak, Border Roads Organisation built a road in Bhutan and placed boards with tricolour shade which wasn’t appreciated by Bhutanese people leading to a backlash. Ultimately, signboards were changed. 
  • Delays in Hydropower projects by Indian companies leading to the country’s burgeoning national debt.
  • Bhutan wants to increase its export power tariff to India as it is lesser than the cost of production.
  • Goods and services tax hurts Bhutanese traders & Demonetisation left lasting scars on the banking system.
  • Indian aid is being criticized for creating ‘jobless growth’ in Bhutan. 
  • The terms on which India is financing the hydropower projects and getting electricity from Bhutan at cheap rates seems unfavourable to Bhutan.  Hydropower plants are also attached with certain environmental concerns

Way Forward

  • Continue Foreign Aid: Although Bhutan remains the largest recipient of Indian aid, the amount of aid in the form of grants and loans to the country has dropped over the last two years.  This is not the right time for India to decrease aid to Bhutan as the Chinese presence there is growing.
  • India must draw Bhutanese public attention to China’s role in a debt trap. Therefore, it will have to ensure that its financial model for projects in Bhutan is different from the Chinese model in other South Asian countries.
  • Respect Bhutanese Values: India should demonstrate respect for Bhutanese values. The Bhutanese are an environment-conscious people. Therefore, India should go for economically and environmentally more viable projects.
  • Maintain Ties with the Bhutanese Monarchy: Unlike their Nepali counterparts, Bhutan’s monarchs have been strong proponents of close relations with India. India should back Bhutan’s constitutional monarchy and strengthen it by channelling its aid through this institution.
  • Emphasize Doklam’s Value to Bhutan: There is a perception among the Bhutanese that Doklam has little significance for their country and hence can be given away to China. However, the Haa district is rich in pasture land and forests. Its value to a country that is largely mountainous is immeasurable. India must spread awareness of this fact.
  • The fourth King of Bhutan King Jigme Singye Wangchuck coined the phrase “Gross National Happiness” in 1972 and declared that is more important than GDP. India needs to combine the Gross National Happiness of Bhutan with its own economic development to maintain shared prosperity and relationship between the two countries.

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