PM Visit to Bhutan

Syllabus: GS2/IR

Context

• Prime Minister Narendra Modi’s recent visit to Bhutan strengthened the special ties of friendship and cooperation between the two countries.

Key Outcomes

• Inauguration of 1020 MW Punatsangchhu-II Hydroelectric Project constructed under a bilateral agreement between both Nations.
• Announcements:
  • Understanding on the resumption of work on the main dam structure of 1200 MW Punatsangchhu-I Hydroelectric Project.
  • Grant of land in Varanasi for building a Bhutanese Temple/Monastery and Guest House.
  • Decision to establish an Immigration Check Post in Hatisar across Gelephu.
  • INR 4000 crore Line of Credit (LoC) to Bhutan.
• MOUs Signed: 
  • MoU on Cooperation in the field of Renewable Energy.
  • MoU on Cooperation in the field of Health and Medicine.
  • MoU between PEMA Secretariat, Bhutan and National Institute of Mental Health and Neuro Sciences (NIMHANS) India on Building Institutional Linkage.

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 Shri 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 more than tripled—from USD 484 million in 2014–15 to USD 1,777.44 million in 2024–25, accounting for over 80% of Bhutan’s overall trade.
  • 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. 
• 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. Its location helps protect the vulnerable Siliguri Corridor (Chicken’s Neck) – India’s only land link to the Northeast.
  • 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.
  • Bhutan plays a role in enhancing India’s connectivity to Northeast India.
    • India’s Act East Policy aims to connect Northeast with Southeast Asia, and Bhutan is integral to such land-link corridors.
• Hydropower and Energy Security: Bhutan’s rivers are a clean and renewable source of energy. India helps build hydropower projects and imports surplus electricity.
  • Helps India diversify its energy mix while giving Bhutan major revenue .
• 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).
• 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.
• Strategic Balancing and Autonomy: Bhutan seeks greater foreign policy autonomy, especially in global forums.
  • While the 2007 Treaty revision gave Bhutan more space, India still plays a dominant role in its external affairs and defence, which could create friction if not managed with sensitivity.

Way Ahead

• While India and Bhutan share a strong foundation of trust and cooperation, evolving economic aspirations, geopolitical realities, and domestic political changes 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. 

Source: TH