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India- Bhutan Relations: A Saga Set in Stone By Asma Masood

Updated: Feb 1, 2023

C3S Paper No. 0056/ 2015


Reports in March stated that the Assam police are pressing for help from neighbouring Bhutan and Myanmar to nab top National Democratic Front of Boroland (Songbijit) militant leaders. Top leaders and associates of the insurgency outfit’s chairman, IK Songbijit, are believed to be in Bhutan.


What are the dimensions of the India- Bhutan partnership? How does China figure in the equation? What measures can be taken to improve Delhi- Thimpu rapprochement?


Delhi- Thimpu: A Multi-hued Partnership

India and Bhutan share a relationship that is deep rooted in strategic, economic and cultural domains. Cultural affinity has existed since ancient times. It may even have been the foundation for the strong ties in other spheres. Economically, India is Bhutan’s main trade partner (99 per cent imports and 90 per cent exports in 2014). The Himalayan kingdom is also dependant on India for its developmental needs. Hydro-power perpetuates this economic dependence as it constitutes 45 per cent of Bhutan’s total exports to India.[1]


The export of clean energy to India is observed as an extension of Bhutan’s Gross National Happiness index policy which emphasizes environmental conservation. These include the Chhukha (336MW), Kurichhu (60MW), and Tala (1020MW) Hydropower projects. By 2020, India will assist Bhutan to help harness 10,000 MW power through hydropower projects and the surplus power is to be sold to India.[2] For this purpose, ten hydropower projects have been agreed upon. However Assam is cautious about the proposed move. Many of the planned projects in Bhutan are on rivers flowing downstream to Assam. Experts are demanding that a downstream impact assessment be carried out in the wake of the projected increase in hydel power activity. Discontent is evident, as seen by the protests in Assam in 2014 when Prime Minister Modi laid the foundation for the 600-MW Kholongchu hydropower project, which is located in the Manas river basin.


While the civil society in Guwahiti may disagree over the hydropower projects, India and Bhutan cooperate to ensure the security of Assam and other Northeast Indian states. This security maneuver has roots in the 1996 mutual extradition agreement which deals with cross-border terrorism and organized crime. Bhutan proved to be India’s trusted friend in 2003 when it launched Operation All Clear and Operation Flush Out against Indian insurgents taking shelter in its territory. [3] The insurgents included the members of United Liberation Front of Assam, who were using Bhutan as a base. Cooperation on the internal security front indicates that Bhutan respects India’s sovereignty and territorial integrity. Stability in Assam is crucial to maintain India’s territorial integrity along China’s border.


The rapprochement between India and Bhutan extends to trade ties as well. Free trade exists between the two countries. There is also an agreement to allow duty free transit of Bhutanese merchandise for trade with third countries. This is significant as Bhutan is a landlocked country. It thus demonstrates the goodwill between Delhi and Thimpu. The level of trade is also at an elevated plane as seen by the figures. During 2012, bilateral trade reached Rs. 68.3 billion.[4] Imports from India were Rs. 41.7 billion, accounting for 79% of Bhutan’s total imports in 2012 .4 Bhutan’s exports to India amounted to Rs. 26.6 billion (including electricity) and constituted 94% of its total exports.4 India is thus Bhutan’s leading trade partner. However the numbers show that a steep trade imbalance exists in India’s favour. The problem extends beyond trade deficit to a rupee liquidity crunch in Bhutan.


The rupee crunch can best be defined through the classic demand-supply logic—that is, the supply of rupees has not been able to keep pace with the demand for rupees.[5]  India has extended a standby credit facility of Rs 300 crores to Bhutan in March 2009 to help Bhutan overcome the rupee liquidity crunch.[6]  Similarly, in June 2012, in the wake of the rupee crunch crisis, India offered Bhutan a Rs. 10 billion credit line with a low interest rate of 5 per cent per annum.5 Making Bhutan more self- reliant will decrease the rupee crunch. Human resources development is necessary to support this industrial growth. India and Bhutan already cooperate on the educational front to groom the upcoming generations. On his recent visit to Bhutan, Prime Minister Modi announced plans to double scholarship money provided to Bhutanese students in India. [7] This move will help shape a skilled work force as well as groom the next generation of leaders in Bhutan.


These amiable ties are supported by Article II of the India Bhutan bilateral treaty, whereby Bhutan’s external relations will be determined by India. In this day Bhutan does not feel bound by the stipulation. However it respects the agreement, as earlier attempts to have talks with Beijing were greeted with India cutting precious fuel subsidies to the small state. India also wishes for the settlement of Bhutan’s Nepali immigrant problem, which causes an influx of Nepali migration into India.


Thus the Indian shades of ties with Bhutan permeate several hard power and soft power aspects. On the other hand China remains reserved in its ties with Bhutan despite sharing borders with the kingdom.


China Bhutan relations: Distant neighbours

These borders are a subject of dispute between Bhutan and China. India is directly implicated in the dispute. This is because one contested region in Bhutan, the Chumbi Valley, which is claimed by China, is in proximity to the Siliguri Corridor of India. This narrow corridor, also known as the ‘Chicken’s Neck’ connects the North Eastern states to the rest of India. Hence the NEI remains vulnerable in wake of the Chinese ambitions in the Chumbi Valley. This region is also of geostrategic importance to China as it borders Tibet and Sikkim. The other areas of dispute between Bhutan and China include the North Western Bhutanese regions of Doklam, Sinchulung, Dramana and Shakhatoe in the Samste, Haa and Paro districts. The Central parts of Bhutan are also under dispute. These constitute the Pasamlung and the Jakarlung valleys in the Wangdue Phodrang district. The North-Western areas of Bhutan which China wants in exchange for the Central areas lie next to the Chumbi Valley tri-junction. [8] Thus the potential consequences of an exchange deal would raise strategic concerns in India.8 India assists and trains the Bhutanese army to safeguard its borders.


Despite performing several incursions, China has never shown any signs of invading Bhutan. It is observed that one reason why China may not be overtly interested in Bhutan is the cultural background of the Buddhist nation. Beijing does not desire strong Bhutan- Tibet ties as it may increase self-awareness of Tibet’s Buddhist identity. China may not be engaging deeply with Bhutan in order to avoid developing Lhasa- Thimpu linkages. Thus the low profile of the China- Bhutan relationship is not only due to absence of political or economic union, but because of a deliberate foreign policy tactic to safeguard China’s influence over its southern borders. Bhutan would not peacefully accept Sinification strategies as seen in Tibet. Besides, India has declared that an act of aggression on Bhutan is aggression on India.


China and Bhutan remain estranged on the trade front as well. Bhutan, while being the only country to not possess diplomatic ties with China, has no official trade links with Beijing. Nevertheless there is a network of informal trade that does exist. There is also some pressure from a section of Bhutanese businessmen to establish limited economic ties with China. This is due to the high transaction costs from Kolkata. India thus faces a challenge whereby it must improve connectivity with Bhutan.


Towards Brighter Shades of Rapprochement

India and Bhutan thus share ties which permeate several crucial aspects. Cooperation on anti-insurgency activities offers strategic advantages. The intense level of trade ties and hydropower cooperation indicate the amiable relationship between the two states. However the rupee crunch in Bhutan is an issue that demands attention. The China factor is also a source of concern, as it lays claim to regions bordering sensitive areas in India. However strong India- Bhutan military cooperation allays fears in Delhi and Thimpu. There remains another concern for India in context of absence of trade ties between China and Bhutan- The demand from Bhutanese businessmen for economic ties with China is due to high transaction costs from Kolkata.


India can benefit by lowering transaction costs to Bhutan as well as developing more Bhutan friendly infrastructural links. One way is to develop connectivity between Chumbi valley and Siliguri Corridor. Connectivity is crucial to establish a world-class economy in Bhutan. It will reduce Bhutan’s reliance on sea lanes as well as uplift the NEI region. It will also require military backing and safeguarding to keep Chinese interference at bay. There are several other realms of Bhutan- India cooperation which leave room for enhancement.


While the measures to tackle the rupee crunch offer some consolation, the issue must be dealt with at its root causes. One reason for the high outflow of rupees from Bhutan is the high dependence on India for agricultural imports. There is also the phenomenon of increase in number of private vehicles imported from India, juxtaposed with the subsequent hike in fuel imports. Thus India can help Bhutan tackle the rupee crunch by making it more self- reliant. Indian companies can invest in building the agricultural sector and agro- based industries in the Himalayan kingdom. The issue of increase in number of vehicles is already being addressed, with Bhutan moving to bring all vehicles in Thimpu to green technology. Nissan Leaf has been roped in import electric cars for the same purpose. India can help Bhutan solve the fuel import issue as well as counter pollution by exporting its own brand of electric vehicles. Bhutan can partner in investing in electric vehicle industries in India to garner maximum benefit. India can also pool investment in harnessing other clean energy sources in the small state to make it less reliant on imported fuel.


Another means by which Bhutan may be made more self-sufficient is the services industry. Delhi can aid Bhutan in setting up ICT industries and BPOs, while training the local population for the same. This will create job opportunities, restrict Nepali immigration and also solve the lack of technical upgradation in Bhutan.


The trend of relations between India and Bhutan signify a positive page in India’s foreign policy book. With India’s help, Bhutan can develop its inherent resources and manpower to grow as a developed economy. In this backdrop, India will not be seen as a hegemonic power in Bhutan, but rather as a platform for Bhutan’s rise and prosperity.


[1] Medha Bisht. ‘India- Bhutan Power Cooperation: Between Policy Overtures and Local Debates” Institute for Defence Studies and Analyses. 2011. Retrieved from http://www.idsa.in/issuebrief/IndiaBhutanPowerCooperation_mbisht_071011.html

[2] Assam jittery over Bhutan hydel plans. Times of India. (2015 Feb). Retrieved from  http://timesofindia.indiatimes.com/india/Assam-jittery-over-Bhutan-hydel-plans/articleshow/46316956.cms

[3]Shubhnam Ghosh. (2014 June). Understanding India- Bhutan Relations. One India. Retrieved from http://www.oneindia.com/feature/understanding-india-bhutan-relations-1467521.html

[4] Ministry of External Affairs, India (2014 June). India- Bhutan Relations. Retrieved from http://mea.gov.in/Portal/ForeignRelation/Bhutan_June_2014.pdf

[5]Medha Bisht. “The Rupee Crunch and India- Bhutan Economic Engagament” Institute for Defence Studies and Analyses. 2012. Retrieved from  http://www.idsa.in/issuebrief/TheRupeeCrunchandIndiaBhutanEconomicEngagement_MedhaBisht_160712.html

[6] Ministry of External Affairs, India ( 2012 February). India- Bhutan Relations. Retrieved from http://mea.gov.in/Portal/ForeignRelation/Bhutan-February-2012.pdf

[7] Abhismita Sen. (2014 Dec). Bhutan’s Diplomatic Relations at the Crossroads of India and China. Diplomatic Courier. Retrieved from http://www.diplomaticourier.com/news/regions/brics/2432-bhutan-s-diplomatic-relations-at-the-crossroads-of-india-and-china

[8] Medha Bisht. “Sino- Bhutan Boundary Negotiations: Complexities of the ‘Package Deal’” Institute for Defence Studies and Analyses.2010. Retrieved from http://www.idsa.in/idsacomments/Sino-BhutanBoundaryNegotiations_mbisht_190110.html


[Asma Masood is Research Officer at the Chennai Centre for China Studies. Her areas of interest are China, South Asia and Dynamics of Foreign Policy. Email id : asma.masood11@gmail.com Twitter: @asmamasood11]

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