India-Bhutan Development Cooperation Talks

General Studies Paper-2

Context

Recently, the India-Bhutan Development Cooperation Talks were held to review the full spectrum of India-Bhutan development partnership.

More About the News

• A total of 10 projects, covering sectors such as healthcare, connectivity and urban infrastructure in Bhutan, were approved.
• India has committed support of 10,000 Crore (100 billion) for Bhutan’s 13th Five Year Plan period (2024-2029).
• The two sides agreed to hold the next Development Cooperation Talks in Thimphu at a mutually convenient date.

Brief on India-Bhutan Relations

• Diplomatic relations between India and Bhutan were established in 1968.
• The basic framework of India- Bhutan relations has been the Treaty of Friendship and Cooperation signed in 1949.
• The treaty was revised in 2007 giving Bhutan more autonomy while reaffirming mutual respect for sovereignty and close cooperation.
• In 2024, Prime Minister Narendra Modi was conferred the Order of the Druk Gyalpo, Bhutan’s highest civilian decoration, the first foreign leader to be given the award.
• Developmental Partnership: India remains Bhutan’s foremost development partner, supporting its national priorities since its 1st Five-Year Plan (1971).
• Annual Plan Talks (Bilateral Development Cooperation Talks): Institutionalised mechanism for deciding priorities and modalities of assistance.
• Sectors Covered: Roads, infrastructure, digital connectivity, hydropower, agriculture, education, health, HR development, urban development, etc.
• Trade Relations: India has consistently been Bhutan’s top trading partner- both as an import source and as an export destination.
  • Since 2014, India’s trade with Bhutan has almost tripled from USD 484 million in 2014-15 to USD 1615 million in 2022-23.
  • 2016 India-Bhutan Agreement on Trade, Commerce and Transit, establishes a free trade regime between the two countries and also provides Bhutan duty free transit of goods to/from third countries.
• Energy Cooperation (Hydropower & Renewables): India has constructed 4 major HEPs in Bhutan: Chukha (336 MW), Kurichhu (60 MW), Tala (1020 MW), Mangdechhu (720 MW).
• Currently, there are two HEPs under construction: 1020 MW Punatsangchhu-I HEP and 1020 MW Punatsangchhu-II HEP.
• Space Cooperation: South Asia Satellite Ground Station inaugurated in 2019 by both Nations.
  • The two sides collaborated on the India-Bhutan SAT, the first satellite jointly developed by India and Bhutan, launched in 2022.
  • Both sides signed a Joint Plan of Action on Space Cooperation in 2024.
• Fin-Tech: RuPay Card: Launched in two phases (2019 & 2020) for full interoperability.
• In 2021, India’s Bharat Interface for Money (BHIM) application was launched in Bhutan with the objective of promoting cashless payments between the two nations.
• India-Bhutan Foundation: It was established in 2003, the Foundation enhances exchanges amongst the people of India and Bhutan through activities in educational, cultural, scientific and technical fields.
• Indian Diaspora in Bhutan: About 50,000 Indians are presently working in Bhutan in the sectors such as infrastructure development, hydropower, education, trade and commerce signifying close people to people ties between the two countries.

Significance of Bhutan for India

• Buffer against China: Bhutan serves as a geographic buffer between India and China. China has no formal diplomatic relations with Bhutan but is actively negotiating the boundary issue.
  • India sees Bhutan as vital to maintaining a South Asian balance of power and resists Chinese strategic encroachment, especially near the tri-junction.
• Neighbourhood First Policy: Bhutan is a central pillar of India’s ‘Neighbourhood First’ policy.
  • Stability in Bhutan reflects India’s larger vision for regional peace and cooperation in South Asia.
• Trade and Economic Ties: India is Bhutan’s largest trade partner and source of investment.
  • Special India–Bhutan Trade and Transit Agreement provides duty-free access to markets.
  • Bhutan is crucial to India’s efforts to promote sub-regional connectivity in South Asia, especially BBIN (Bangladesh-Bhutan-India-Nepal).
• Connectivity and Act East Policy: Bhutan plays a key role in enhancing India’s connectivity to Northeast India. Its location helps protect the vulnerable Siliguri Corridor (Chicken’s Neck) – India’s only land link to the Northeast.
  • India’s Act East Policy aims to connect Northeast with Southeast Asia, and Bhutan is integral to such land-link corridors.
  • Road and internet infrastructure developed with Indian assistance improves regional integration.
• Diplomatic and Multilateral Support: Bhutan often supports India’s positions in international forums, including the UN.
  • Bhutan’s commitment to peaceful foreign policy and non-alignment aligns with India’s regional diplomacy.

Challenges in Relations

• Economic Imbalance: Bhutan faces a large trade deficit with India, importing much more than it exports.
  • Despite preferential trade agreements, Bhutanese industries struggle to diversify.
• China Factor and Border Negotiations: Bhutan and China have held 24 rounds of border talks, including a 2021 MoU on a “three-step roadmap.”
  • India is concerned about potential China–Bhutan border agreements, especially in the Doklam region, which is strategically vital for India.
• Connectivity Gaps: Limited road and rail links restrict economic and strategic integration.
  • Bhutan has reservations about joining the BBIN Motor Vehicles Agreement due to environmental and cultural concerns.
• Environmental and Sustainability Concerns: Bhutan’s model of Gross National Happiness and environmental protection sometimes clashes with India’s infrastructure-led approach (e.g., highways, hydropower).
• Strategic Balancing and Autonomy: Bhutan seeks greater foreign policy autonomy, especially in global forums.

Way Ahead

• While India and Bhutan share a strong foundation of trust and cooperation, evolving economic aspirations, geopolitical realities in both countries pose challenges.
• Managing these with mutual respect, transparency, and strategic sensitivity is key to sustaining their special relationship.
• India–Bhutan relations are a model of good-neighbourly partnership based on mutual trust and benefit.