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India-Bhutan Relations
2024 JAN   13

India-Bhutan Relations

2024 MAR 18

Mains   > International relations   >   India and Neighbours   >   India- Bhutan


GS 2 >> International Relations >> India and Neighbourhood


Prime Minister Narendra Modi hosts Bhutanese counterpart Tshering Tobgay in India, strengthening bilateral ties and discussing key areas of cooperation. In a joint statement, the MEA said that the PMs of the two countries acknowledged that the exemplary ties of friendship between India and Bhutan are a source of strength for both partners and the region


Following are the top points from the joint statement issued by MEA amid Bhutan PM Tobgay’s India visit:


  • India and Bhutan share unique and exemplary bilateral relations, which are based on mutual trust, goodwill and understanding. 
  • Formal diplomatic relations between India and Bhutan were established in 1968. 
  • The basic framework of India-Bhutan relations is the Treaty of Friendship and Cooperation signed in 1949 between the two countries, which was renewed in February 2007.



  • The India-Bhutan Agreement on Trade, Commerce, and Transit, established in 1972 and updated in 2016, facilitates free trade between the two nations. India is Bhutan's primary trading partner, accounting for about 80% of Bhutan's total trade. India's trade with Bhutan nearly tripled from USD 484 million in 2014-15 to USD 1422 million in 2021-22, favoring India in balance.
  • Furthermore, India is the largest investor in Bhutan, representing 50% of its FDI, with around 30 Indian companies operating in diverse sectors like banking, manufacturing, electricity, and agri/food processing. 

Development Partnership: 

  • Since the 1960s, India has been a key partner in Bhutan's socio-economic development, particularly through its Five Year Plans. For Bhutan's 12th Five Year Plan, India contributed Rs. 4500 crore, accounting for 73% of Bhutan's external grants. 
  • Currently, over 82 major and intermediate projects, along with 524 small development projects, are in progress in Bhutan. 

Hydropower Cooperation: 

  • Hydropower cooperation is vital in India-Bhutan economic relations, significantly boosting Bhutan's economy and revenue. This partnership is based on the 2006 bilateral agreement and its 2009 Protocol. Four hydro-electric projects (HEPs) in Bhutan, totaling 2136 MW, already supply electricity to India.
  • These include the 720 MW Mangdechhu project, commissioned in August 2019 and transferred to Bhutan in December 2022. Additionally, two projects, the 1200 MW Punatsangchhu-I and the 1020 MW Punatsangchhu-II, are in various stages of development.

Cultural and Buddhist Links: 

  • A number of Bhutanese pilgrims travel to Bodh Gaya, Rajgir, Nalanda, Sikkim, Udayagiri, and other Buddhist sites in India. As a part of the 50th anniversary celebration of diplomatic relations, GOI sponsored a visit by 18 Lam Netens (Buddhist monks) and representative of the Central Monastic Body of Bhutan to India. 

Education and Capacity Building: 

  • Many Bhutanese students benefit from scholarships provided by the GOI for studying in Indian educational institutions. In addition, many Bhutanese youth also enroll as self-financed students in Indian universities.
  • During the State visit of Prime Minister of India to Bhutan in 2019, four MOUs on cooperation in STEM Education were signed between the Royal University of Bhutan and the Indian Institutes of Technology at Delhi, Bombay, Kanpur and the National Institute of Technology, Silchar. 


  • Approximately 50,000 Indians work in Bhutan across various sectors like infrastructure, education, trade, health, and IT, reflecting strong India-Bhutan ties. Their role in Bhutan's development is widely acknowledged. 

COVID-19 Assistance:

  • In line with India-Bhutan unique and special relations, GoI ensured continuous supply of trade and essential items to Bhutan, despite COVID-19 related lock-downs. GoI also provided essential medicines and medical supplies - including Paracetamol, Hydroxychloroquine, PPEs, N95 masks, xray machines and test kits to the Royal Government of Bhutan. 

New Areas of Cooperation: 

  • India and Bhutan have expanded their cooperation beyond hydropower into new areas like digital technology and space. The RuPay digital project is fully operational, and Bhutan is the second country to launch the BHIM app, enhancing financial connectivity.
  • In space collaboration, both countries developed a small satellite, the India-Bhutan SAT, launched by ISRO's PSLV on November 26, 2022. This venture, under the 2019 Joint Statement and a 2020 MoU, also included the inauguration of a Ground Earth Station in March 2023.


  • Geopolitical Position: Bhutan's location is strategically important for India. It acts as a buffer state between India and China, particularly in the region of the Doklam plateau, which has been a point of military tension.
  • Hydroelectric Power: Bhutan has vast hydroelectric potential, and India has invested heavily in this sector. The electricity generated is exported to India, helping to meet its energy demands and contributing to Bhutan's economy.
  • Security Concerns: India and Bhutan have a strong military and security relationship. Bhutan's cooperation is crucial for India to manage and secure its northeastern borders, particularly against insurgencies and China's influence.
  • Economic Interests: India is Bhutan's largest trading partner. The economic relationship includes not only trade but also significant Indian aid for Bhutan's development, which helps stabilize and grow the Bhutanese economy.
  • Cultural and Historical Ties: The two countries share deep cultural, religious, and historical ties, with Buddhism being a major connecting thread. These ties foster goodwill and mutual understanding.
  • Environmental Cooperation: Bhutan's commitment to maintaining a significant portion of its land under forest cover aligns with India's environmental and climate goals. Collaborative efforts in environmental conservation are beneficial for both nations.


China's Influence: 

  • The growing influence of China in the region has been a source of concern for India. Bhutan, while having no diplomatic relations with China, has been engaged in border negotiations with China. This has sometimes been seen as a shift in Bhutan’s foreign policy, potentially affecting its relations with India.
  • For instance, former Bhutanese Prime Minister Lotay Tshering, perceived as more open to engagement with China, signed a cooperation agreement with Beijing in October 2023 for border delineation, involving a joint technical team.

Hydropower Projects: 

  • Hydropower generation is a major area of cooperation between India and Bhutan. However, there have been concerns in Bhutan about the hydropower projects with India, particularly regarding fairness in revenue sharing, environmental impact, increasing economic dependency, and India's strategic influence in this sector.

Territorial claims by China: 

  • The Doklam standoff in 2017 between Indian and Chinese forces in a territory claimed by both China and Bhutan highlighted the strategic challenges in the region. Doklam region along with the Sakteng dispute underscores the complexities of the tri-junction border area involving India, China, and Bhutan.

Economic and Trade Concerns:

  • Bhutan's economy is closely intertwined with India, its primary trading partner. However, this relationship has occasionally led to tensions, exemplified by Bhutan's withdrawal from the BBIN Motor Vehicle Agreement in 2017 over environmental and sovereignty issues. 
  • Moreover, a trade imbalance exists, with Bhutan importing more from India than exporting. Bhutan is now seeking better market access in India to reduce this trade deficit and achieve a more equitable economic relationship.

Political Dynamics

  • The internal political dynamics in Bhutan, such as the approach of different political parties towards India, can also impact bilateral relations. For instance, former Bhutanese Prime Minister Lotay Tshering is known for his pro-China stance, which influenced Bhutan's foreign policy and impacted its relations with India.


  • Balanced Trade Relations: Work towards reducing the trade imbalance, possibly by providing greater market access to Bhutanese products in India.
  • Sustainable Hydropower Development: Address concerns in hydropower projects, ensuring fair revenue sharing and minimal environmental impact.
  • Enhanced Strategic Cooperation: Collaborate on shared security concerns, including combating terrorism, drug trafficking, and other transnational crimes.
  • Diversified Economic Cooperation: Expand economic cooperation beyond trade and hydropower, exploring sectors like technology, education, and sustainable development.
  • Political Diplomacy: Engage with various political entities in Bhutan to maintain strong bilateral relations irrespective of the changing political landscape.
  • Border Security and Cooperation: Continue collaboration on border security, respecting each other’s sovereignty and security concerns.
  • Cultural Exchange and People-to-People Contact: Enhance cultural exchanges and educational cooperation to strengthen people-to-people ties.
  • Environmental Collaboration: Jointly focus on environmental conservation and climate change initiatives, leveraging Bhutan's commitment to environmental preservation.


Q. “The relationship between India and Bhutan is largely positive and cooperative, but it is not immune to the complexities and challenges that characterise international relations." Discuss.( 15 marks, 250 words)