Why stronger economic ties with Bhutan are in India’s interests

First, among India’s seven neighbouring countries of Afghanistan, Bangladesh, Bhutan, the Maldives, Nepal, Pakistan and Sri Lanka, which form the South Asian Association for Regional Cooperation (SAARC), Bhutan is the only one that does not have great relations with China. Bhutan does not have diplomatic ties with China but a “special relationship" with India. That is good news for us. The other SAARC countries have strong ties with China.

Even though Bhutan is a small landlocked kingdom of 38,394 square km with a population of only about 777,000, its strategic importance lies in its location - sandwiched between China in the north and India in the south. For India, therefore, Bhutan is a buffer zone. Beyond political and diplomatic moves, stronger economic relations are a surefire way to contain China.

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Second, India is Bhutan’s top trade partner and leading investment partner. Since 2014, India’s trade with Bhutan has almost tripled to $1,422 million in 2021-22 from $484 million in 2014-15, accounting for about 80% of Bhutan’s overall trade, with the balance of trade in India’s favour. Bilateral trade is conducted in Indian rupees, which are fully convertible to ngultrum at par.

Timber and boulders

Third, India is the leading source of investments in Bhutan, comprising 50% of the country’s total foreign direct investment (FDI). There are over 30 Indian companies operating in Bhutan in various sectors – banking, manufacturing, electricity generation, agriculture and food processing, ITES, pharmaceuticals, hospitality and education.

These include Punjab National Bank, State Bank of India, Tata Power Company Ltd, General Insurance Corporation, and Apollo Educational Infrastructure Services. Many of them are in the services sector. The Reliance Group’s investments in power generation and manufacturing would further solidify Indo-Bhutan economic ties.

Fourth, among the more than 12 decisions taken at the commerce secretary-level meeting between India and Bhutan on 27 September 2024 at Thimpu were two items, though hidden in the details, that will significantly benefit India.

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They are the import of large-scale timber and boulders into India from Bhutan. About 70% of the Himalayan Kingdom is covered with forests and much of the roads in the country are built by India’s Border Roads Organization (BRO). For a climate-ravaged India, both boulders and timber are immensely useful.

Finally, the Gelephu Mindfulness City coming up in Bhutan on the Assam border is expected to stabilise the law-and-order situation in the northeastern states of India, especially Assam.

Additionally, in a recent interview to The Week magazine, Bhutan’s Prime Minister Tshering Tobgay said about the city, “It is designed for Bhutan. But it is not just for Bhutan. It is going to benefit Assam and all of India. We see it as an economic gateway for the world to India and through India to southeast Asia."

The Anil Ambani Group has had a troubled financial history in recent years even though it is trying to settle them. Economic relations are also gradually shifting from government to government to the Indian private sector. India’s more stable conglomerates should invest in Bhutan. The Tata and the Adani groups are currently exploring investment options. That should be the direction of future Indo-Bhutan economic ties.

George Skaria is a columnist and co-author of Beyond Three Generations: The Definitive Guide to Building Enduring Indian Family Businesses.

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