Law School Assignment

India Bhutan Relations: A Comprehensive Study

India Bhutan Relations

India Bhutan Relations: Tshewang Dema, Bhutan


The importance of neighbours to the foreign policy perception of any state cannot be overemphasized. For, often, it must take into consideration the foreign policy perceptions of other states and function within that structure. The smaller states surrounding India, are important factors in the preservation and development of its national interests. On the other hand, by virtue of their geographical proximity to India’s borders they are strategically important to India’s security.  In this context, the importance of India’s friendly relations with them is further highlighted because of India’s unfriendly relations with China and Pakistan.  On the other hand, their historic and economic links provide common ties of interest which have formed the basis of friendly relations. Although, often, and paradoxically, these very links have proved to be a source of friction –creating areas of tension. Moreover, these smaller states have become the battleground between strategic competitors because of their geostrategic location. Most of the above-mentioned concerns also applied to Bhutan. Bhutan is a tiny landlocked country situated in a strategic location between two of the most powerful Asian nations-China and India. The most important implication of its location and the crucial factor influencing the formulation of its foreign policy is that a friendly or dependent Bhutan is, for strategic reasons, a necessity for both India and China. The evolving geopolitical environment in Bhutan is one of the most ponderous and crucial issues which needs immediate attention of the Indian policymakers. This paper is an endeavour which will systematically analyse the relationship between the two neighbours and highlight the complexities and changes in the relationship between two countries since 1949 and its prospects in future.

Key Term- India and Bhutan Relations; Treaties; Cooperation area; Foreign Policy


“Bound by common interests and shared prosperity, India and Bhutan enjoy a unique and special relationship, which has been forged by ties of geography, history and culture. Therefore, Bhutan as the destination for my first visit abroad as Prime Minister is a natural choice. Relations with Bhutan will be a key foreign policy priority of my government.”

Prime Minister Shri Narendra Modi, 14 June 2014

Bhutan is a Himalayan Buddhist Kingdom that is physically small with limited economic dimension and military might. Unlike its neighbours in the region, it was never colonized; while two world wars and the cold war ushered the world into an atmosphere of instability and alignments, Bhutan was spared such direct impact. Nevertheless, Bhutanese society has traditionally been sensitive to issues of security and preserving its sovereign independence and territorial integrity has historically been a constant challenge. 

This has been in part owing to its self-isolationist policy up until the second half of the 20th century, and the preservation and promotion of a strong sense of identity that has ensured social cohesion and unity. Having never been colonized, nor feeling any direct impact of two world wars and the cold war, Bhutan has been spared the conflicts and turmoil such as that of the legacy of hatred and mistrust generated by the partition of British India into present-day India and Pakistan.

The bilateral relations between the Himalayan Kingdom of Bhutan and the Republic of India have been traditionally close and both countries share a ‘special relationship‘, making Bhutan a protected state, but not a protectorate, of India. India remains influential over Bhutan’s foreign policy, defence and commerce.

Diplomatic relations between India and Bhutan were established in 1968 with the appointment of a resident representative of India in Thimphu. Before this, our relations with Bhutan were looked after by our Political Officer in Sikkim. The basic framework of India – Bhutan bilateral relations is the Treaty of Friendship and Cooperation signed in 1949 between the two countries, which was updated and signed during the visit to India of His Majesty Jigme Khesar Namgyel Wangchuck in February 2007.

Bhutan and India share traditionally warm and friendly relationship which is relatively trouble free when compared with other South Asian neighbours. After India’s independence in 1947, standstill agreements with Sikkim, Nepal and Tibet were signed to continue existing relations until new agreements were made. For Bhutan, its status became clearer following Nehru’s invitation for a Bhutanese delegation to participate in the Asian Regional Conference in 1947.Following this, the negotiations for a fresh Indo-Bhutan treaty started in 1949.  The basis for bilateral relations between India and Bhutan is formed by Indo-Bhutan treaty of 1949.This treaty of 1949 replaced the earlier treaty of 1910 between the British Indian Government and Bhutan. Bhutan has moved constitutional monarchy after the general elections of 2008 for the first time to elect National Assembly. Since the form of government was to be changed, in order to keep with the spirit of democracy and to respect the mandate of people, certain changes were required in the existing relationship between India and Bhutan. Keeping this in mind the visit of the new King of Bhutan Jigme Khesar Namgyal Wangchuk in February 2007, a new treaty of peace and friendship was signed between the two countries. The revised treaty recognizes Bhutan’s “Sovereignty and Territorial Integrity-Elements”, which were absent in the earlier version. The treaty can also call the framework for future interaction, highlighting cooperative friendship between the two countries.

The initiation of Indo-Bhutan friendship as it stands today, is credited to the efforts of Indian Prime Minister Pandit Jawahalal Nehru and His Majesty Jigme Dorji Wangchuck, the third King of Bhutan. Their meeting in the 1950s sparked the dialogue for development cooperation. Looking back over the decades since then, and under the continued guidance of the present king His Majesty Jigme Singye Wangchuck, Indian assistance has greatly expanded in every field of Bhutan’s development and socioeconomic growth. To this day, India continues to provide the largest and most diverse assistance to Bhutan among all other donors. Often cited as a “shining” example of friendship and cooperation between a large country and a small neighbour, relations between the two continue to grow at all levels.


Recorded historic relations between Bhutan and India date back to 747 A.D., when the great Indian saint Padmasambhava introduced Buddhism in Bhutan, which has since then permeated all aspects of Bhutanese life. Aside from such shared cultural and religious heritage, other areas of interaction developed during the British rule in India, which include several Anglo-Bhutanese skirmishes and battles that were consequently followed by treaties and agreements. It was within this period of interaction with the British that trade between Bhutanese and Indians was also recorded to have taken place for the first time (1873).

China’s invasion of Tibet (1910-12) and subsequent claims made on Bhutan resulted in the signing of the Treaty of Punakha in 1910 with British India. Although this treaty served to expel any claims that China might have tried to make, it did not define Bhutan’s status technically or legally; for the Bhutanese, this was a source of uncertainty over its relations with India at the time that the British rule was nearing an end. After India’s independence in 1947, ‘standstill agreements’ with Sikkim, Nepal and Tibet were signed to continue existing relations until new agreements were made; for Bhutan, its status became clearer following Nehru’s invitation for a Bhutanese delegation to participate in the Asian Relations Conference in 1947. Following this, the negotiation for a fresh Indo-Bhutan Treaty started in the summer of 1949.

 The basis for bilateral relations between India and Bhutan is formed by the Indo-Bhutan Treaty of 1949, which provides for, among others, “perpetual peace and friendship, free trade and commerce and equal justice to each other’s citizens.” The much-speculated Article 2 in the Treaty, in principle, calls for Bhutan to seek India’s advice in external matters, while India pledges non-interference in Bhutan’s internal affairs.

The geopolitical scene in the entire Himalayan region and Indian sun-continent underwent great change following the proclamation of the People’s Republic of China in 1949 and the takeover of Tibet by the People’s Liberation Army in 1950. These events, plus the presence of Chinese troops near Bhutan’s border, the annexation of Bhutanese enclaves in Tibet and Chinese claims all led Bhutan to re-evaluate its traditional policy of isolation; the need to develop its lines of communications with India became an urgent necessity. Consequently, Bhutan was more inclined to develop relations with India, and the process of socioeconomic development began thereafter with Indian assistance. For India’s own security too, the stability of Himalayan states falling within its strategic interest was a crucial factor to consider. With border 115 tensions between India and China escalating into military conflict in 1962, India could not afford Bhutan to be a weak buffer state.

Based on this backdrop, Indo-Bhutan relations began to take on concrete form following state visits made by the third king, His Majesty Jigme Dorji Wangchuck to India, and by Prime Minister Jahawalal Nehru to Bhutan between 1954 to 1961. Besides emphasizing India’s recognition of Bhutan’s independence and sovereignty in his public statement in Paro, Nehru’s visit in 1958 was also significant with discussions initiated for development cooperation between the two countries.

 Formal bilateral relations between Bhutan and India were established in January 1968 with the appointment of a special officer of the Government of India to Bhutan. The India House (Embassy of India in Bhutan) was inaugurated on May 14, 1968 and Resident Representatives were exchanged in 1971. Ambassadorial level relations began with the upgrading of residents to embassies in 1978.

Beginning with India, Bhutan began to diversify its relations in the international community, thereby projecting its status as an independent and sovereign nation. With India sponsoring Bhutan’s application for UN membership in 1971, the leaders of the two countries demonstrated that Article 2 of the Indo-Bhutan Treaty was not a restricting factor in the exercise of Bhutan’s foreign policy.

  • Later Independent India signed the “Treaty of Friendship and cooperation” in 1949.
  • This laid the foundation for the beginning of the modern relations between the two nations.
  • One of the important provisions of the treaty, ‘Article 2’ declared that India should not interfere with Bhutan’s internal affairs while foreigner relations will continue to take place under its guidance.
  • Formal diplomatic relations were established in 1968 after a special office of India was set up in Thimphu.
  • In its relations with India, since the late 1950s, Bhutan has repeatedly made efforts to asserts its independent identity and had often expressed the desire to reduce its dependence on India.
  • During the Sino-India war of 1962, the Bhutanese king declined to offer a base to status in New Delhi to full ambassadorial level and established diplomatic relations with nations independence of India’s opinions.
  • In 2007, Article 2 of the 1949 treaty was revised, forever changing the term of the erstwhile India- Bhutan relations.
  • This new treaty states that Bhutan can import arms as long as India’s national interest are not harmed and there is no re-export of weapons, either by government or individual.    
  • Article 6 and 7 of this treaty deals with the issue of “national treatment” and equal privileges for the citizens on the other’s soil
  • In 2017, Bhutan withdrew from the BBIN Motor Vehicle Agreement, claiming that it was unfavourably affecting its environment and sovereignty.


Bhutan and British decided to finally replace/revise/amend/change the Treaty of Sinchula of 1865 by a new treaty. It was signed between king Ugyen Wangchuk and Sir Charles Bell (British Political Officer) on January 8th, 1910 at Punakha. The Treaty of Punakha is not a stand-alone document, but represents a modification of the Treaty of Sinchula of 1865, the prior working agreement between Bhutan and British India.[1] As such, the Treaty of Punakha is an amendment whose text incorporates all other aspects of the Treaty of Sinchula by reference.

For five months, between 1864 and 1865, Bhutan and British India engaged in the Duar War, which Bhutan lost. As a result, Bhutan loss of part of its sovereign territory, accompanied by forced cession of formerly occupied territories. Under the terms of the Treaty of Sinchula, signed on 11 November 1865, Bhutan ceded territories in the Assam Duars and Bengal Duars, as well as the eighty-three square kilometre territory of Dewangiri in southeastern Bhutan, in return for an annual subsidy of 50,000 rupees. By the turn of the century, continuing geopolitical developments raised the question of a new treaty. Ugyen Wangchuck had consolidated power as Penlop of Trongsa and was unanimously elected monarch by government and religious cadres just two years earlier, in December 1907.

Under the Treaty of Punakha, Britain guaranteed Bhutan’s independence, granted Bhutanese Royal Government an increased stipend, and took control of Bhutanese foreign relations. Although this treaty began the practice of delegating Bhutanese foreign relations to another suzerain, the treaty also affirmed Bhutanese independence as one of the few Asian kingdoms never conquered by a regional or colonial power.


With the departure of British from the Indian subcontinent, it became necessary for both India and Bhutan to define or redefine their mutual ties and to make a fresh beginning. It was now for Bhutan to choose a subordinate status vis-a-vis Tibet, or have sovereign independence, the latter being a status she could automatically have claimed on the abrogation of the treaty of 1910 with Britain.[1]

Towards the end of 1948, Maharaja Jigme Wangchuk sent  a  delegation  to  New  Delhi  to  discuss  relations between  Bhutan  and  India.[2]  The  Government  of  India assured the Government of Bhutan that it would respect Bhutan’s autonomy if it maintained the same relationship with independent India as  it has maintained  with British India. Maharaja Jigme Wangchuk continued negotiations with the Government of India in 1948-49, the result of which was Indo-Bhutanese Treaty of 1949. It was termed as the Treaty of Perpetual Peace and Friendship signed in Darjeeling on 8 August 1949. Included were seven major clauses designed “to regulate in a friendly manner, and upon a solid and durable basis, the state of affairs caused by the termination of British Government authority in India, and to promote and foster the relations of friendship and neighbourliness”. The most important provision was embodied in Article 2, the provision starting; “that the government of India would undertake to exercise no interference in the internal administration of Bhutan. On its part, the Government of Bhutan agrees to be guided by the advice of the Government of Indian, regarding its external relations”.[3] It is this article, more than any other which perpetuates the relation between India and Bhutan. 

There is also provision for free trade and commerce and India agreed to grant Bhutan “every facility for the carriage, by land and water, of its produce throughout” the territory of India including the right to use forest roads. The treaty allows Bhutan to import with  the assistance  and approval  of  the  government  of  India; arms, ammunitions, machinery, warlike material, etc., so long  as  their  import  dose  not  impair  India’s  security interests and as long as, “Government of India is satisfied that  the  intentions of the Government of Bhutan are friendly and  that there is  no danger  to India  from such importations”[4] Bhutan  agreed  not  to export arms  either through the Government or by private individuals. It was also agreed that equal justice would be dispended to nationals of either side residing in the other’s territory and extradition facilities accorded when necessary. 

It is, incorrect to assume that Bhutan signed the 1949 treaty under any kind of diplomatic or political pressures from the side of India. Since Bhutan had lived in a state of isolation, largely because of geographical reasons but also due to psycho-cultural inhibitions which the people in the region had developed, a sudden and abrupt change would  only  have  upset  the  people  much  beyond  their capacity to adjust and accommodate. The treaty of 1949 should be looked at in the overall context of the political environment prevailing at that time, both at the regional and domestic level, in both the countries.  Bhutan’s main concern was the restoration of sovereign status, and when negotiations for a renewed treaty with India began in 1949, its objectives were simple:  recognition of its independence and restoration of the Dewangiri hill strip on the frontier with India.  Bhutan got what it wanted: autonomy in internal affairs while agreeing to be guided by India in external matters.[5]    

As for India, the objective behind the signing of treaty of 1949 was to protect her strategic interests. The background to this Treaty can be understood if we note that during that period, namely, in 1949, the communist movement was very powerful in China.  It had captured power from the KMT (Kuo Min Tang) regime.  Naturally, India was deeply concerned with the rapid onslaught of communist forces, which could disturb the democratic set up of the country and the integrity of the nation. Hence, to contain Chinese communist influence and expansion in the Indian sub-continent, India might have concluded this treaty.  We cannot deny the fact, that already in 1948, India was facing the consequences of the accession of Jammu and Kashmir.  India’s support to Bhutan as a sovereign and independent country was the right decision in the circumstances.                                                  


Although in 1949, India recognized the full sovereign status of Bhutan and the treaty of 1949 was freely negotiated by Bhutan, but time and again, demands of its review have taken place considerably. The essence of the criticism is that it does not permit full autonomy to Bhutan in the regulations of her external relations. It has “formalised the imperial bequest” and nipped in the bud Bhutan’s aspirations to carve out its own future in equal partnership with neighbours. The treaty it is said has affected Bhutan’s status ever since it was signed. Article 2 are regarded by many as an instrument to dilute Bhutan’s sovereignty and many treat it as an unequal treaty.  It was for nothing that in 1960, Druk Gyalpo Jigme Dorji Wangchuck has asserted, “We are not a hundred per cent independent because of 1949 treaty”.  During the regime of Janta Party’s Government led by Mr Charan Singh, Bhutan made its displeasure known when Foreign Secretary, Mr S.N.Mishra visited Bhutan. Bhutan took a stringent line on the treaty of 1949 and projected the need to revise it. In September 1979, King Jigme Singye Wangchuck in his Harare speech said, “that he wished the Indo-Bhutanese treaty of 1949 to be updated”. As already mentioned, the treaty of 1949 contained Article 2 by virtue of which Bhutan was guided by India in international relations. This was always seen as a limit to the political sovereignty of Bhutan. The treaty of 1949 which provides a legal basis to the special relationship between India and Bhutan has, in a way, become obsolete. It neither gives a complete picture of the whole gamut of Indo-Bhutan relations nor of the role and perception of Bhutan as a national actor. Because of the developments within Bhutan and in the region the character of the Himalayan Kingdom has undergone a sea change and so on the relationship between India and Bhutan have grown much beyond the latter spirit of the treaty of 1949. However, there are Indian analysts who believe that Article 2 was never invoked and as such it is irrelevant for India to retain its influence. Instead, the Clause has been a sort of a burden; for India being accused by adversarial forces as “hegemonic and expansionist ambitions”. It would be for the best interest for both India and Bhutan to update the treaty.


 The updated India-Bhutan Friendship Treaty was signed on 8 February 2007 between Pranab Mukherjee, the then India’s Minister of External Affairs, Jigme Khesar Namgyal Wangchuck, the then Crown Prince and now King of Bhutan.[6] This treaty brought two significant changes in the earlier existing treaty of 1949 between the two countries. Firstly, Article 2 of the India- Bhutan Treaty of 1949 is reformulated in the updated treat to the satisfaction of Bhutan. Article 2 of the India-Bhutan Friendship Treaty 2007 reads as follows:   In keeping with  the abiding ties  of close friendship and cooperation between Bhutan and India, the Government of the Kingdom of Bhutan and  the  Government  of  the  Republic  of  India shall cooperate closely with each other on issues relating  to  their  national  interests.  Neither Government shall allow the use of its territory for activities harmful to the national security and interest of the other.

 The revised or updated Article 2 of the India-Bhutan Friendship Treaty 2007 gives enough space for Bhutan to conduct her foreign relations independent of India’s advice. Now, technically, Bhutan does not need to seek the permission of India to establish direct diplomatic relations with third countries. Secondly, article 4 of the new treaty also permits Bhutan to import arms, immunities etc., which are essential to strengthen the security of Bhutan in consultation with India. However, this arrangement shall hold well for all time as long as the government of India is satisfied that the intentions of the government of Bhutan are friendly and that there is no danger to India from such importations.  Apart from these changes, the treaty also talked about perpetual peace and friendship along with the decision that neither of the government shall allow the use of its territory for activities harmful to the national security and interest to others.  The treaty also talked about closer trade, commerce economic and cultural cooperation.  Further,  it was also agreed that any differences and disputes arising  in the interpretation and application of the treaty shall  be settled bilaterally by negotiations in a spirit of trust and misunderstanding in consonance with the historically close ties of friendship and mutually beneficial cooperation that form the bedrock of Bhutan –India relations.


  The 1949 Friendship Treaty since the days of Jawaharlal Nehru and King Jigme Dorji Wangchuck has guided the contemporary Indo-Bhutan relationship. The treaty insured non-interference by India in Bhutan’s internal affairs and inter alia Article 2 of the treaty that entrusted India to guide Bhutan’s foreign policy was most significant.  Although, it was a set of bureaucratically defined framework for their relationship, however, it did embed values of trust and equality. This spirit kept the relationship moving unhindered.  Various forms of phrases such as “special relations”, “privileged relations” and “strategic alliance” and so on so forth were used for signifying the depth of bilateral ties. Relations between two countries are more than the treaty dictates. They are age old, extremely friendly in character. They have been nourished and consolidated by close contact between the leadership and people of the two countries. The India-Bhutan Friendship Treaty, which was redrafted and signed in 2007, set the bilateral relations on a new course signifying the two countries mutual trust. The amendment was to exemplify the trust and maturity of the relationship and to meet the needs of 21st century political reality. The revised or updated treaty gives enough space for Bhutan to conduct her foreign relations independent of India’s advice. This treaty does not have the imperial trapping like the previous 1949 treaty. It has laid the basis for a relationship that is responsive to each other’s national interests, a relationship that is consultative, and a relationship that ensures mutually beneficial cooperation.

  • Bhutan’s significance to India stems from its geographic location. Nestled in the Himalayas, it is sandwiched between India and China. Thus, it serves as a buffer between the two Asian giants.
  •  Bhutan’s value as a buffer soared after China annexed Tibet in 1951. As the 2017 crisis in the Doklam region revealed, India will strongly oppose, even militarily, any Chinese attempt to assert control over Doklam. Securing Bhutan’s present borders especially its western border is clearly important for India. Doklam in the hands of a hostile power would heighten the vulnerability of India’s Siliguri Corridor, a narrow strip of land that links India to its Northeastern states. So vital is Doklam to India’s defence that India has a permanent and sizeable military contingent and an army hospital in Haa district, where Doklam is located.
India bhutan relations

Doklam (also known as Donglang) is located close to the Siliguri Corridor (also known as Chicken’s Neck), which has been a point of vulnerability for India. China, on the other hand, has a great military disadvantage in Chumbi Valley. Image source: Wikimedia Commons

  • Bhutan has economic value to India as well. It provides a market for Indian commodities and a destination for Indian investment. India also sees Bhutan as a rich source of hydropower. A politically stable Bhutan is important to India. An unstable and restive Bhutan would not only jeopardize India’s investments in that country but also provide a haven for anti-India activities and anti-India militant groups. A politically stable Bhutan is important to India. An unstable and restive Bhutan can provide a safe haven to anti-India activities and anti-India militant groups.


 India and Bhutan enjoy a ‘special’ relationship, one that both describe as ‘exemplary’. Typically, the two have been mindful of the other’s concerns; India of Bhutan’s sovereignty and Bhutan of India’s security concerns. India responded positively, albeit slowly, to Bhutan’s desire to function as a fully sovereign state. In 2007, it amended the 1949 Treaty of Perpetual Peace and Friendship and did away with Bhutan being required “to be guided by the advice” of India in the conduct of its foreign policy or seek its “approval” on arms purchases. Indeed, the 2007 Treaty of Friendship brought into their relationship an element of equality. It requires both countries to not allow the use of their “territory for activities harmful to the national security and interest of the other.”[7] As for Bhutan, it has refrained from accepting the package deal that China offered it in 1996 to settle the border dispute. Under this deal, China is reportedly willing to give up claims on Jakurlung and Pasamlung Valleys in northwestern Bhutan in exchange for Bhutan relinquishing control over Doklam.[8] Accepting this deal would give Bhutan settled borders. Yet, in deference to India’s security concerns, Thimphu has not accepted this deal yet.


 India has strong military and economic ties with Bhutan. The Indian military “is virtually responsible for protecting Bhutan from external and internal threats” and to this end, the Eastern Command of the Indian Army and Air Force have integrated Bhutan’s defence into their role and responsibilities. In addition, the Indian Military Training Team (IMTRAT) trains Bhutanese security personnel as well. India dominates Bhutan’s economy. It is Bhutan’s largest trade partner; around 79% of Bhutan’s total imports are from India and India provides a market for 90% of its exports. Additionally, India is Bhutan’s largest aid donor. Between 2000 and 2017, Bhutan received $4.7 billion in aid from India, the lion’s share of India’s total foreign aid.[9] Takshashila Strategic Assessment: Takshashila Policy Advisory India-Bhutan Relations – Fostering the Friendship May 2018 Page 4 of 9 India has also financed much of Bhutan’s Five-Year Plans. The magnitude of its contribution can be gauged from the fact that the US$750 million it provided for Bhutan’s Eleventh Five-Year Plan (2013-18) was 68% of the total assistance that Bhutan received from external sources.[10] India is also playing an important role in Bhutan’s infrastructure development by building roads and hydro-power projects. Development of Bhutan’s hydropower has not only provided the Bhutanese with electricity for domestic use but also surplus energy which India purchases. Bhutan’s earnings from its export of electricity to India accounts for 40% of all the revenue it earns and 25% of its Gross Domestic Product.


There are several institutional mechanisms between India and Bhutan in areas such as security, border management, trade, transit, economic, hydropower, development cooperation, water resources. There have been regular exchanges at the Ministerial and officials’ level, exchanges of parliamentarian delegations to strengthen partnership in diverse areas of cooperation.

  1. Border Management

There is a Secretary-level mechanism on border management and security related matters. Last meeting on the subject was held in New Delhi in November 2017. There is also a Border District Coordination Meeting (BDCM) Mechanism between the bordering States and the Royal Government of Bhutan (RGoB) to facilitate coordination on border management and other related matters. The 23rd BDCM between RGoB and West Bengal was held from 24-25 October 2017 in Thimphu. The 10th BDCM between RGoB and Assam was held from 28-29 January 2015 in Bongaigaon, Assam.

  • 2. Water Resources

India is playing an important role in development of hydro-power projects. This not only provides Bhutanese with electricity for domestic use but also revenue from surplus electricity exported to India.

So far, Government of India has constructed three Hydroelectric Projects (HEPs) in Bhutan. Currently, India is helping Bhutan in the development of power plant on Mangdechhu River.

This hydropower cooperation comes under 2006 Agreement on Cooperation in Hydropower. Under a protocol to this agreement, India has agreed to assist Bhutan in the development of minimum of 10,000 MW of hydropower and import of surplus electricity from same by year 2020.

Also, there is a Joint Group of Experts (JGE) on flood management between India and Bhutan. These Joint Group of Experts (JGE) on flood management between India and Bhutan to discuss/ assess the probable causes and effects of the recurring floods and erosion in the southern foothills of Bhutan and adjoining plains in India and to recommend appropriate measures to both Governments. Last meeting of JGE was held in April 2017 in Thimphu, Bhutan.

  • 3. Economic:

Bhutan provides a market for Indian commodities and is a destination for Indian investment.

India is Bhutan’s leading development partner. Since the launch of First Five Year Plan of Bhutan in 1961, India has been extending financial support to Bhutan’s FYPs. India has allotted Rs 4500 crore to Bhutan’s 12th FYP.

Mutually beneficial economic ties have been the main pillar of India-Bhutan bilateral relations. India continues to be the largest trading and development partner of Bhutan. Planned development efforts in Bhutan began in the early 1960s. The First Five Year Plan of Bhutan was launched in 1961. Since then, India has been extending financial assistance to Bhutan’s Five-Year Plan. India continues to be the principal donor for the socio- economic development of Bhutan. So far, ten Five Year Plans of Bhutan have been completed, two of which were totally financed by India (1st & 2nd).

India has also contributed to Bhutan’s development outside the framework of the Five-Year Plans. Plan-wise allocations made by the Royal Government, showing India’s contribution therein, are as follows: –

YearTotal AllocationsIndia’s Contribution% of India’s Contribution
1961 – 66 [1st Plan]10.7210.72100%
1966 – 71 [2nd Plan]20.2220.22100%
1971 – 76 [3rd Plan]47.5242.6690%
1976 – 81 [4th Plan]110.6285.3077%
1981 – 87 [5th Plan]444.05134.0030.2%
1987 – 92 [6th Plan]950.00400.0042.1%
1992 – 97 [7th Plan]2350.00750.0031.9%
1997 – 2002 [8th Plan]4000.001050.0026%
2002-2008 [9th Plan]8900.002610.1429.33%
2008-2013 [10th Plan]14900.003400.00*23%
2013-2018 [11th Plan]21300.004500.0021%
  • Some of the major projects in Bhutan undertaken with Indian assistance in the past include 1020 MW Tala Hydroelectric Project, 336 MW Chukha Hydroelectric Project, 60 MW Kurichhu Hydroelectric Project, Penden Cement Plant, Paro Airport, Bhutan Broadcasting Station, Major Highways, Electricity Transmission and Distribution System, Indo-Bhutan Microwave Link, Exploration of Mineral Resources, and Survey and Mapping.

Also, for India, Bhutan is a rich source of hydropower.

Bilateral Trade

The trade between the two countries is governed by the India Bhutan Trade and Transit Agreement 1972 which was last renewed in November 2016.

The agreement establishes a free-trade regime between the two countries and provides for duty-free transit of Bhutanese exports to third countries. India is Bhutan’s largest trading partner. In the period from January- June 2018, trade between two countries stood at Rs. 4318.59 crore.

Major exports from India to Bhutan are mineral products, machinery and mechanical appliances, electrical equipment’s etc. whereas major items of import from Bhutan are electricity, ferrosilicon, Portland cement etc.

The updated India – Bhutan Friendship Treaty of 2007 provides for strengthening of bilateral trade relations. Article III of the Treaty states: “there shall, as heretofore, be free trade and commerce between the territories of the Government of Bhutan and the Government of India. Both the Governments shall provide full cooperation and assistance to each other in the matter of trade and commerce”.

India is not only Bhutan’s main development partner but also its leading trade partner. A free trade regime exists between India and Bhutan. Trade and Commerce Agreement between the two countries was first signed in 1972.

This Agreement was renewed for a period of 10 years during 2006. Currently, the major items of exports from Bhutan to India are electricity (from Tala, Chukha and Kurichhu Hydroelectric Projects), base metals and articles, minerals, vegetable fat and oils, alcoholic beverages, chemicals, cement, timber and wood products, cardamom, fruit products, potatoes, oranges and apples, raw silk, plastic and rubber products. Major exports from India to Bhutan are petroleum products, mineral products, base metals and articles, machinery, automobiles & spares, vegetable, nuts, spices, processed food and animal products, chemicals, wood, plastic and rubber. The Agreement on Trade and Commerce also provides for duty free transit of Bhutanese merchandise for trade with third countries. The entry/exit points for bilateral trade is given in the Trade Agreement.

Total trade between India and Bhutan has increased by nearly 50 times during 2000-01 and 2018-19. Growth in bilateral trade has been driven largely by the rapid economic growth and greater commercial integration between the two countries. In the last eight years, trade balance has been in India’s favour and the divergence between India’s exports to Bhutan and imports from Bhutan has only increased over time. However, between 2006-07 to 2010-11, India had a trade deficit with Bhutan due to a surge in imports of wires of refined copper (HS 740811) and refined palm oil and derivatives (HS 151190) in 2006-07 and 2007-08. In the following years, import of these two items declined sharply and the import of ferro silicon (HS 720221) and carbides of calcium (HS 284910) grew rapidly and was mainly responsible for India’s imports exceeding its exports to Bhutan. In the last few years our exports to Bhutan have picked up and this is reflected in the recent total trade and trade balance figures:

YearIndia’s Export to BhutanIndia’s Import from BhutanTrade BalanceTotal Trade

Source: Directorate General of Foreign Trade, Ministry of Commerce and Industry, Government of India

4. Educational and Cultural Cooperation

Many colleges going Bhutanese students’ study in India. Government of India provides number of scholarships to Bhutanese students. Regular cultural exchanges take place between the two countries. One of the basic objectives of India Bhutan Foundation established in 2003 is to enhance people to people exchange in cultural field.

Undergraduate Scholarships

Government of India scholarships are granted to Bhutanese students at Undergraduate level every year to study in prestigious Indian Institutions of higher learning. Under this scheme, 450 slots have been approved for Bhutanese students to pursue Undergraduate courses in India for the XI FYP. Thus, every year GoI is providing fully funded 90 (ninety) scholarships to deserving Bhutanese students in different professional streams such as MBBS (in AIIMS), Engineering, LLB, B.Sc (Nursing), B.Sc (Agriculture), BDS etc. From 2013-2017, total 370 students were selected for this scholarship. In 2018-19 the scholarship was availed by 87 students from Bhutan.

  • Nehru-Wangchuk Scholarships

Prestigious Nehru-Wangchuk Scholarship is being awarded to deserving and talented Bhutanese nationals to undertake studies in selected and premier Indian educational Institutions. Till date since its inception in 2010, 74 (Seventy-four) scholarships have been awarded which is inclusive of the 8 scholarships awarded in the Academic year 2018-19 under this scheme.

  • Ambassador’s Scholarship

Ambassador’s scholarship is being awarded to meritorious and deserving Bhutanese students who are studying in various/colleges in India on self-financing basis as well as to other suitable candidates. In the year 2013, 668 self-financing Bhutanese students received the Ambassador’s scholarship. The allocation of fund of this scholarship has since been doubled to Rs. 4 crore per annum. The total number of students who were awarded Ambassador Scholarship in 2016-17 was 866 and in 2017-18 are 843.

  • Colombo Plan (CP) Lecturers

Under ITEC programme 30 slots for lecturers are offered to Bhutan. In 2018-19, 11 lecturers from India were deputed in various colleges of Bhutan. In total 12 Indian CP lecturers are deputed in Bhutan. The deputation of teachers is based on the requirement given by Royal Government of Bhutan.

  • Nalanda University Scholarship

Two scholarships are offered to Bhutanese students to study in Nalanda University for post-graduation courses including in Buddhist philosophy.

  • SAARC Scholarship

Two scholarships are offered to Bhutanese students under SAARC scholarship for post graduate study.

Indian Community

There are about 60,000 Indian nationals living in Bhutan (floating population), employed mostly in the hydro-electric power and construction and road industry. In addition, between 8000 and 10,000 daily workers enter and exit Bhutan every day in border towns.

Labour Relations

Beginning with the inception of development plans in the 1960s, Bhutan’s requirement of semi-skilled and unskilled labour has been filled in by expatriates, particularly Indians, first in road construction and then in other sectors such as mining, agro-based industries and hydropower projects with the shift in development priorities. This dependence sprung from the lack of in-country experience and skills in road construction as well as technical skills and equipment. Indian personnel and labourers were recruited in large numbers, 119 mainly from neighbouring Indian states. While Indian labourers found employment on Bhutanese roads, Bhutanese labourers (who were mostly farmers) were spared the sole brunt of undertaking the construction works. Currently, the public road maintenance is entrusted mainly to Project Dantak[11], and at any given time it has an average 2000 Indian labourers working on roads in various parts of Bhutan.

Considering that the modern system of formal education in Bhutan was initiated only after 1955 and that it was a few decades before the first generation of qualified Bhutanese entered the civil service, much Indian personnel were recruited by the Bhutanese government to fill in administrative posts and others related to development programmes in the 1960s. While Bhutanese nationals have gradually replaced Indians in these posts, many continue to serve in both public corporations and the civil service to this day. However, a turning point has come where the successes of modern education have helped to gradually replace Indian expatriates in various professions such as teaching, health and medics, engineering, accounting and administration.


Irrespective of contemporary geopolitical pulls and pressures, the Kingdom of Bhutan remained steadfastly and unshakeably the most reliable ally of India. When Druk King Jigme Singye Wangchuck personally led his troops to fight against the Indian insurgent groups, it meant to protect security of both Bhutan and India. Not just that, Bhutan unwaveringly remained committed to India.  For example, its safeguarded India’s security interests, never played the China card, never ruffled India’s feathers in the region, and above all readily cooperated with India to exploit hydro-power assets.  After the signing of the treaty of 2007, Bhutan and India entered in a new phase of partnership. The revised treaty recognises Bhutan’s sovereignty and territorial integrity, which were absent in the earlier version. The treaty can also be called the framework for future interaction, highlighting cooperative partnership rather than relationship built on financial dependence. India-Bhutan relationship is perhaps the only bilateral engagement in South Asia which has stood the test of time.  While Bhutan, all through these years, appreciated India for its economic assistance and cooperated actively on the security front, India for its part has been sensitive to Bhutan’s developmental needs. At the official level, Bhutan has explicitly conveyed that India’s interests will be safeguarded. The relationship has helped Bhutan shape a unique developmental trajectory based on Gross National Happiness (GNH).  Bhutan’s economy has grown substantially over the past years. India has been a significant development partner of Bhutan.  Among India’s South Asian neighbours, Bhutan remains an example of bilateralism in the India’s neighbourhood. It remains its largest trading partner. India from time to time has supported Bhutan’s developmental effort.  In June 2014, India provided Rs 700 crore standby credit Facility to Bhutan in order to overcome its rupee liquidity crunch. Liquidity crunch has been haunting Bhutan for the past few years, but it has managed it so far with Indian intervention. For instance, in March 2009, India extended a standby credit facility of Rs. 300 crores to help Bhutan overcome the rupee crunch. In 2011, this limit was increased to Rs. 600 crores.

Similarly, in June 2012, in the wake of the rupee crunch crisis, India offered Bhutan a Rs. 10 billion credit line with an interest rate of 5 per cent per annum. Government of India also reimburses the excise duty paid by Bhutan to buy manufactured good from India. On the educational front, India provides 50 scholarships annually to Bhutanese students to study in the institutes of higher learning in India.  Another 50 scholarships are provided under the Colombo Plan.  Prime Minister Modi has promised opening of 20 e-libraries in 20 districts of Bhutan and double the Nehru-Wangchuk scholarship initiated in 2009. In the field of Defence, Indian Military Training Team (IMTRAT) trains and equips the Royal Bhutan Army and prepares its members for attending several training courses at the Indian military training establishments. India aids and assists the construction of hydro projects in Bhutan and then buys the power.  Unlike the bad experience with Nepal on the Kosi and Gandak, in case of Bhutan the success of one project has led to another, based on confidence, economic viability and shared benefits. The confidence has led to a recent agreement between the two countries to develop 10 hydropower projects with a total capacity of 11,800 MW by 2020 in Bhutan. The ability to harness hydropower with close collaboration with India marked the beginning of bilateral cooperation in strengthening Bhutan’s energy security and water resource management.  In 2011, the largest share to country’s GDP was from hydropower with 17.05 percent of the total revenue. The revenues thus accruing to Bhutan have helped the mountain Kingdom to become the richest state in the region in per capita terms. In July 2014, Prime Minister Modi has laid the foundation stone of the 650 MW Kholongchu Hydroelectric projects to widen the scope of cooperation further.30 Both countries seem to be committed to achieve the 10,000 MW target by 2020.


Over the last 60 years, Indian diplomacy has enabled deep political and economic ties with Bhutan. India and Bhutan share close and friendly relations underscored by mutual trust and confidence. India-Bhutan relationship is perhaps the only bilateral engagement in South Asia which has stood the test of time. The relationship has helped Bhutan shape a unique development trajectory based on gross National Happiness (GNH). India and Bhutan bilateral relations are characterized by the regular high-level political interactions which are instrumental in strengthening the bilateral ties.

Aware of its small size, lack of advanced technology and military defence capabilities, Bhutan has had to rely on alternative security measures such as “national identity for cultural cohesion, and neutrality to renew its long-term security” An added bonus to this strength has been its natural location in the Himalayas along the lines of India’s strategic security interests, and consequent prospects for internal growth.

However, such a location has been a factor not only of strength but also its vulnerability. Being a landlocked, mountainous country, Bhutan’s trade routes and access to the sea pass through India and it is thus largely dependent on the latter for its economic security. While Bhutan has diversified its political and economic relations and has attained a good level of socio-economic development, the reality of its position and shared borders with India means that destabilizing elements from external sources continue to pose threats to its stability. These have been evident from the spill over effects of militancy from Assam, and of cross-border economic migration driven by regional poverty.

As the world globalizes and traditional barriers are broken down, Bhutan too is being swept into the process. Along the way, its traditional strongholds of national identity and cultural cohesion will continue to face increasing challenges, just as its long spell of internal peace and tranquillity was challenged by issues manifesting out of regional situations like poverty, economic migration and militancy.

As Bhutanese, however, one can take pride in the fact the leadership, the present king, has guided the country along a unique development path of its own without submitting incorrigibly to external influences. And while the illicit presence of the ULFA-NDFB-KLO militants on Bhutanese soil was a shared concern of both India and Bhutan, Bhutanese leaders were clear on their stand that such immediate security threat to its sovereignty would be taken in its stride. Thus, the military operations launched by the Bhutanese army to flush out the militants in December 2003 not only provided assurance of Bhutan’s capability to safeguard its own security, it was also another commitment made toward the maintenance of strong Indo-Bhutan ties.

Ever since Bhutan and India embarked upon the road of friendship and cooperation, the two countries have demonstrated that a journey of peace and mutual benefit between two neighbours can be pursued, even in a region where the level of economic disparity, terrorism and conflict is high. We can perhaps look at such a relation as a model of friendship and cooperation between close neighbours.


[1] Nagender Singh, Bhutan: A Kingdom in Himalayas, Treaty of Punakha, (New Delhi: 1988), pp.242-243.

[2] Madhu Rajput,  Indo-Bhutan  Relations  through  Prism  of  History,  Manak Publications, (New Delhi: 2011), p.106.

[3] Foreign Policy of India: Text of Documents, 1947-59 Lok Sabha Secretariat, (New Delhi: 1959), Edn.2, p.17

[4] A.Appadorai  and M.S.  Rajan, India’s  Foreign  Policy  and  Relations,  South Asian Publishers, (New Delhi: 1988), p.172.

[5] Syed  Aziz-al  Ahsan  and  Bhumitra  Chakma,  Bhutan’s  Foreign  Policy: Cautious  Self-Assertion?, Asian  Survey,  Vol.  33,  No.  11  (Nov., 1993),  p. 1043.

[6] Mit Baruah, “India, Bhutan update Friendship Treaty”, The Hindu (Internet Edition), 9 February 2007, available at: (visited on 10 February 2020). 

[7] Indo-Bhutan Friendship Treaty, Ministry of External Affairs, Government of India, available at: (visited on February 15, 2020).

[8] Sino-Bhutan Boundary Negotiations: Complexities of the ‘Package Deal’, Medha Bisht, available at: (visited on February 15, 2020).

[9] Wary of China, India Shares Its Largesse with Neighbors, Stratfor, available at: (Visited on February 15, 2020).

[10] Economic Cooperation with Bhutan, Embassy of India in Thimphu, available at: (visited on February 16, 2020).

[11] An organization of the Indian Border Roads Organization

    • 1 year ago (Edit)

    […] bordered on three sides by sea. It shares land borders with Pakistan to the west, China, Nepal, and Bhutan to the north, and Bangladesh and Myanmar to the east, all of which are bounded by the Indian Ocean on the south, […]

    • 3 years ago (Edit)

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