MoU between India and Bhutan

General Studies Paper -2

Context: The Union Cabinet recently gave its approval for the signing of Memorandum of Understanding between the Government of India and the Royal Government of Bhutan.

About

• The MoU signed between the two countries is on General Supply of Petroleum, Oil, Lubricants (POL) and related products from India to Bhutan.
• It aims to benefit India and its citizens with improved economic and commercial linkages with Bhutan irrespective of any gender, class or income bias, particularly in the area of hydrocarbon sector.

Expected Benefits of MoU

• The Memorandum of Understanding will promote bilateral trade in the hydrocarbon sector and will ensure secured and long term supply of petroleum products to Bhutan.
• Since, exports play a crucial role in realizing Aatmanirbhar Bharat. The MoU will give thrust towards self-reliant India. 
• The MoU will be a strategic fit as Energy Bridge in India’s Neighborhood First Policy.

India-Bhutan Relations: An Overview

• Diplomatic relations between India and Bhutan were established in 1968with the establishment of a special office 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 was the Treaty of Friendship and Cooperation signed in 1949between the two countries, which was revised in February 2007.
• The India-Bhutan Friendship Treaty not only reflects the contemporary nature of our relationship but also lays the foundation for their future developmentin the 21st century.

Major Areas of Cooperation

Hydropower Cooperation

• Hydropower projects in Bhutan are an example of win-win cooperation,providing a reliable source of inexpensive and clean electricity to India, generating export revenue for Bhutan and cementing our economic integration.
• The ongoing cooperation between India and Bhutan in the Hydropower sector is covered under the 2006 Agreement on Cooperation in Hydropower and the Protocol to the 2006 agreement signed in March, 2009.
• So far, the Government of India has constructed three Hydroelectric Projects (HEPs) in Bhutan totaling 1416 MW (336 MW Chukha HEP, 60 MW Kurichhu HEP and 1020 MW Tala HEP), which are operational and exporting surplus power to India.
• About three-fourth of the power generated is exported and the rest is used for domestic consumption.

Bilateral Trade

• The India-Bhutan Agreement on Trade, Commerce and Transit – which was first signed in 1972 and revised most recently for the fifth time in 2016 – establishes a free trade regime between the two countries.
• India is Bhutan’s largest trading partner. Since 2014, India’s merchandise trade with Bhutan has almost tripled from USD 484 million in 2014-15 to USD 1422 million in 2021-22, accounting for about 80% of Bhutan’s overall trade, with the balance of trade in India’s favour.
• In 2021-22, India’s bilateral trade with Bhutan was USD 1422 million, of which India’s exports to Bhutan amounted to USD 877 million and India’s imports from Bhutan were USD 545 million.

Border Management

• There is a Secretary-level mechanismon border management and security related matters. There is also a Border District Coordination Meeting Mechanism between the bordering States and the Royal Government of Bhutan to facilitate coordination on border management and other related matters.

Water Resource Management

• There is a 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.

Educational and Cultural Cooperation

• A large number of college going Bhutanese students are studying in India. It is estimated that approximately 4000 Bhutanese are studying in Under Graduate courses in Indian Universities on a self-financing basis.

ITEC Training Programme Scheme

• Every year GoI provides 300 training slots under ITEC programme and a further 60 slots under TCS Colombo Plan in various fields to Bhutanese for upgrading their administrative and technical skills.

Challenges

• China’s Growing Influence:China’s increasing presence near the disputed India-Bhutan-China border and its growing economic ties with Bhutan raise concerns for India’s strategic interests.
• Delay in Projects:Delays and disagreements regarding revenue sharing from India-Bhutan hydropower projects can create tension.
• Trade Dependence:Bhutan’s heavy reliance on India for trade makes it vulnerable to economic fluctuations in India.
• Hydropower Projects and Environmental Risks:Bhutan has concerns about environmental and social impacts from hydropower projects.
• Motor Vehicle Agreement:India’s plans for a Motor Vehicle Agreement within the Bangladesh-Bhutan-India-Nepal grouping have faced delays.
• Power Purchasing Policy:India’s sudden change in its power purchasing policy, rigid rates, and refusal to allow Bhutan to join the national power grid and trade with third countries like Bangladesh has strained relations.

Measures Needed

Strengthening Economic Cooperation: India can invest in infrastructure development, tourism, and other sectors to diversify Bhutan’s economy and reduce its dependence.

• Enhanced Connectivity:Improved road, rail, and air links will  boost trade, tourism, and people-to-people exchanges.
• Cultural and Educational Exchange: Programs fostering cultural understanding and educational opportunities  can strengthen the bond between the two nations.
• Strategic Dialogue:Regular high-level talks  on security and border issues can address concerns and maintain transparency.
• Addressing Bhutan’s Concerns:India must address Bhutan’s anxieties regarding  China’s influence through sensitive diplomacy and economic cooperation.
• Multilateral Cooperation: Collaboration on regional projects  like hydropower and infrastructure development can be pursued  through organizations like BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical Cooperation).

Way Forward

• Maintaining a strong and mutually beneficial relationship with Bhutanis crucial for India’s strategic interests in the region.
• By addressing challenges and implementing the measures required, India and Bhutan can ensure a prosperous and secure future for both nations.