India Bhutan Relations

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

Timeline of India Bhutan Relations

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. Consequently, the Bhutanese king 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 were established in 1968 with the appointment of a resident representative of India in Thimpu.  
  • Regular visits between both countries’ highest level Government functionaries 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.

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

India-Bhutan Friendship Treaty

  • Treaty of Friendship was signed in 1949. Terms of Treaty included 
    1. As per Article-2 of the treaty, India accepted Bhutan’s sovereign and independent status, but Bhutan has to seek Indian guidance in matters of defence and external affairs. 
    2. Apart from that, Indian citizens have the same right to employment in Bhutan as Bhutanese nationals do in India. 
    1. Open border system between Bhutan and India under which citizens of India and Bhutan have a right to move into each other’s territory without a visa
  • The treaty was revised in 2007 because Bhutan raised its 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) provides for duty-free transit of Bhutanese exports through India to third countries.
  • Treaty of Cooperation in Hydropower and Protocol (2006): Under the treaty, India has agreed to help and assist Bhutan in developing Hydropower of 10 GW and assured Bhutan to import the surplus 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 jeopardize Indian security. 
  • After the Doklam standoff, securing Bhutan’s present borders, especially its western border, is essential for India to secure Siliguri Corridor/ Chicken’s Neck.  

To contain insurgency in North-East

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

Political Importance

  • An unstable and restive Bhutan would jeopardize India’s investments in that country and 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 the Chinese 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, 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 principal 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 developing 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. 
  • The government is planning to build a mini dry port in the border town of Phuentsholing to promote trade. 
  • 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 financed the dams through aid and loans and buys excess electricity. Bhutan exports around 45% of its hydropower to India. 
  • Both countries have committed to developing 10,000 MW of hydropower generating capacity in Bhutan. 
  • Three hydroelectric projects (HEPs) made with Indian assistance are already operational. These projects include
    • Tala HEP (capacity = 1 GW || Most important project of Bhutan)
    • Chukha HEP
    • Kurichu HEP


  • 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. 
  • 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. 
  • Bhutan feels that the Indian firms end up recruiting cheap Bangladeshi labour in dam construction; as a result, Bhutanese don’t stand to benefit from the diplomacy.

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) to enhance people to people exchanges in focus areas like education, culture, scientific and technical research, and environment protection.
  • About 60,000 Indian nationals live in Bhutan, employed mainly in the hydroelectric power and construction industry. 

Other aspects of cooperation

  • Space Cooperation: In 2020, India and Bhutan signed MoU on Space Cooperation and India will assist Bhutan in Remote Sensing, Space Communication etc. 
  • 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.
  • During COVID Crisis (2020-21), India supplied vaccines to Bhutan. In return, when India faced a severe oxygen shortage, Bhutan gave 40 metric tonnes of oxygen (~10,000 cylinders) every day to India.
  • India is also assisting Bhutan in establishing an e-Project covering all the 20 districts of Bhutan.
  • PM Narendra Modi has coined the idea of B2B as ‘Bharat to Bhutan’ to build effective and renewed bilateral relationships.

Issues / Irritants

Although the older Bhutanese generation looked to India with gratitude, the newer generation tends to look more profoundly and dissatisfied at the situation.

  • Doklam Crisis (73-day India-China standoff In 2017 ): Doklam, or Donglang in China, comprises 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 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 standoff. Doklam is 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 acting as a roadblock in solving the Bhutan-China boundary issue: Bhutan cant solve their boundary dispute with China. Bhutan has three disputed regions with China: 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 because it would adversely affect its environment and its sovereignty.  
  • Bhutan also stopped free tourist access to Indians in 2020.
  • Imposing behaviour of India: Bhutanese people are raising voices against increasing Indianisation. E.g., 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 & Demonetization 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 to certain environmental concerns. 

Way Forward

  • Continue Foreign Aid: Although Bhutan remains the largest recipient of Indian aid, the amount of assistance in grants and loans to the country has dropped over the last two years. It is not the right time for India to decrease aid to Bhutan as the Chinese presence is growing.
  • India must draw the Bhutanese public attention to China’s role in the debt trap policy of China, epitomized by the Hambantota port case in Sri Lanka. 
  • Respect Bhutanese Values: India should demonstrate respect for Bhutanese values. The Bhutanese are 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.
  • 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 a shared prosperity and relationship between the two countries.