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Importance of Bhutan for India

1. Bhutan in a buffer state between India and china. Bhutan shares a 470 km long border with China. Traditionally, the Himalayan kingdom acted as a buffer state between the India and China.
2. Strategic importance: The Chumbi Valley is situated at the trijunction of Bhutan, India and China and is 500 km away from the “Chicken’s neck” in North Bengal, which connects the northeast with rest of the country.
3. To contain insurgency in North-East: Bhutan has in the past cooperated with India and helped to flush out militant groups like United Liberation Front of Asom (ULFA) and National Democratic Front of Bodoland (NDFB) from the Himalayan nation.
4. To check Chinese inroad in Bhutan: China is interested in establishing formal ties with Thimphu, where it does not yet have a diplomatic mission. Bhutan is strategically important for both India and China. Chinese territorial claims in western Bhutan are close to the Siliguri Corridor.

• Energy security: Hydro-electric power generated by Bhutan’s run-of-the river dams is the economic bedrock of the India-Bhutan relationship.  India has helped finance the dams through a combination of aid and loans and buys the excess electricity at very low prices.Three hydro-electric projects (HEPs) totaling 1416 MW, (336 MW Chukha HEP, the 60 MW Kurichu HEP, and the 1020 MW Tala HEP), are already exporting electricity to India.In 2008 the two governments agreed to further develop a minimum of 10,000 MW hydropower generation capacities by 2020 and identified ten more projects.

Indo-Bhutanese relationship: Historical Perspective

• With land area of roughly 38,394 sq km and located between India and China, Bhutan is a small Himalayan kingdom with a total population of 6,95,819 and is of great strategic consequence for India’s neighbour-hood policy.
• Bhutan’s population can be conveniently categorised into three groups: the Sharchops, Lhotshampas and the Ngalungs (often called Drukpas). While the Sharchops and the Ngalungs live in the Eastern and Western Bhutan respectively, Lhotshampas reside in the Southern region. The Ngalungs are the ruling group who control the monarchy and the National Assembly, with a prominent place in the economy.

For much of its history, Bhutan has preserved its isolation from the outside world, staying out of international organisations and maintaining few bilateral relations. Bhutan became a protectorate of British India after signing a treaty in 1910 allowing the British to “guide” its foreign affairs and defence.

A protectorate, in its inception adopted by modern international law, is a dependent territory that has been granted local autonomy and some independence while still retaining the suzerainty of a greater sovereign state.

Bhutan was one of the first to recognise India’s independence in 1947 and both nations fostered close relations, their importance augmented by the annexation of Tibet in 1950 by the People’s Republic of China and its border disputes with both Bhutan and India, which saw close ties with Nepal and Bhutan to be central to its “Himalayan frontier” security policy.

India shares a 605 kilometres (376 miles) border with Bhutan and is its largest trading partner, accounting for 98 percent of its exports and 90 percent of its imports.

Initiation of Indo-Bhutanese relations

The signing of the Treaty of Punakha in 1910 with British India and the Chinese invasion of Tibet (1910-12), along with subsequent claims made on Bhutan resulted in the tide turning events in Indo-Bhutan relationship.

This treaty of Punakha, signed in between the Druk Gyalpo (King of Bhutan) and the Political officer of Sikkim C. A. Bell on 8th of January 1910, served to expel any claims that China might have tried to make, yet it was mute on the status of Bhutan, and the legality of its relationship with the British India.

For the Bhutanese, this was a source of uncertainty over its relations with India at the time when British rule was nearing an end.

After India’s independence in 1947, a standstill agreement was signed with each of the external states, for e.g. Sikkim, Nepal and Tibet which defined the relationship with these kingdoms in explicit terms and ensured the continuance of existing relations until new agreements were made but this was not the case with Bhutan.

Its status as a country with respect to India became clear following Prime Minister Jawaharlal Nehru’s invitation to participate in the Asian Relations Conference in 1947.

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. Bhutan gradually began to diversify its relations with 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.

The Treaty of 1949 had ten Articles. The very first Article tries to perpetuate Indo-Bhutanese friendship for all time to come by stating, “There shall be perpetual peace and friendship between the Government of India and the Government of Bhutan.” However, the most important provision in the treaty is its Article 2, according to which, “The Government of India undertakes 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 India in regard to its external relations.” The point that had provoked some amount of criticism or controversy pertains to the second part of this Article since it tries to qualify Bhutan’s external relations. The treaty also established a free trade regime between India and Bhutan. Further, the citizens of both countries residing in each other’s territory will be treated on par with own citizens. The treaty also had provisions for extradition of Indian citizens in Bhutan and of Bhutanese citizens in India when required, and the procedure for the same has been spelt out. The mechanism for settling disputes arising out of differences in interpretation or application of the treaty is also mentioned. It is also stated that the treaty shall continue in perpetuity unless terminated or modified by mutual consent.

The Treaty of 1949

The basis for bilateral relations between India and Bhutan is formed by the Indo-Bhutan Treaty of 1949. On August 8, 1949 Bhutan and India signed the Treaty of Friendship, calling for peace between the two nations and non-interference in each other’s internal affairs. However, Bhutan agreed to let India “guide” its foreign policy and decided that both nations would consult each other closely on foreign and defence affairs. The treaty also established free trade and extradition protocols.

The Treaty of 2007

The treaty of 1949 between India and Bhutan was updated in 2007. The most significant change was in Article 2. The new Article 2 is worded 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 updated India-Bhutan Friendship Treaty not only reflects the contemporary nature of the relationship but also lays the foundation for their future development in the 21st century. Amongst others, the Treaty provides for perpetual peace and friendship, free trade and commerce, and equal justice to each other’s citizens.

Economy: A broad overview

A great shift in Bhutanese economy is that it is on the verge of opening up. Recently, during the question hour session of the National Assembly, which was held on February 18, 2014, the issue of “ease of doing business”in Bhutan was raised. Since 2010, preparations have been underway in Bhutan to expand and liberalize investment policies. For instance the Foreign Direct Investment (FDI) Policy and the Economic Development Policy were released; where by achieving self-reliance was identified as the key goal. In 2012, rules and regulations related to FDI were passed, which established the key criteria for doing business in Bhutan.

While the roles of key committees and respective power of the department were established, coordination between different departments, infrastructure development, would be the key to facilitate and invite investment.

In early 2013, the Economist described Bhutan as fifth fastest growing economy, with a GDP growth rate of 8.5 percent. However there is an over-reliance of the economy on the hydro sector. Diversification of the economy to generate jobs which can absorb the youth of Bhutan has emerged as a single most area of concern.

Economic Cooperation between Bhutan and India

Mutually beneficial economic linkages between India and Bhutan have been an important element in the bilateral relationship. India continues to be the largest trade and development partner of Bhutan. Planned development efforts in Bhutan began in the early 1960s. The First Five Year Plan (FYP) of Bhutan was launched in 1961. Since then, India has been extending financial assistance to Bhutan’s FYPs. The 10th FYP ended in June 2013. India’s overall assistance to the 10th FYP was Rs. 3625 crores, excluding grants and concessional loans for hydropower projects, various subsidies and excise duty refund.Hydropower is one of the main pillars of bilateral cooperation. Three Hydropower projects developed with Indian assistance and which have already been completed are 1020 MW Tala Hydroelectric Project, 336 MW Chukha Hydroelectric Project, 60 MW Kurichhu Hydroelectric. Ten more projects have been agreed to. Of these three are already under construction – Punatsangchhu-I Hydro Electric Project, Punatsangchhu–II and Mangedechhu HEPs. Negotiations are underway for the remaining seven projects of Kholongchhu, Amochhu,

Wangchu and Bunakha Reservoir, Kuri Gongri, Chamkharchhu and Sankosh.GOI also provided Rs. 300 crores towards the establishment of Dungsum Cement Plant at Nganglam with

a capacity to produce 1 million ton of cement every year. The project is expected to be commissioned shortly.

Standby Credit Facility

GoI extended a standby credit facility of Rs 1000 crores to RGoB to help Bhutan overcome the rupee liquidity crunch. This Credit Facility was provided at a concessional interest rate of 5% per annum. It is valid for 5 years.

Trade with India

India is not only Bhutan’s main development partner but also its leading trade partner. The existing free trade regime between India and Bhutan was last renewed in 2006 for a period of 10 years. The India-Bhutan Trade and Commerce Agreement was first signed in 1972.

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.

Sixteen exit/entry points in India identified in the Protocol for Bhutan’s third country trade are: Jaigaon, Chamurchi, Ulta Pani, Hathisar (Gelephu), Darranga, Kolkata, Haldia, Dhubri, Raxaul, Panitanki, Changrabandh, Phulbari, Dawki, New Delhi, Chennai and Mumbai. Of these, Kolkata, Haldia, Mumbai and Chennai are the designated seaports, Dhubri is the riverine route, New Delhi, Chennai,Mumbai and Kolkata are the air routes and Raxaul is the rail route. The others are the designated road routes.

Domestic Politics and India

Understanding Bhutan’s key foreign policy developments will be incomplete without taking into account its domestic developments. The 2013 elections were indeed an insightful eye-opener for understanding Bhutan’s democratization process.

A not much talked about factor in the 2013 elections in Bhutan is the role of the King. Given the debate during the 2013 elections in Bhutan, and India’s role in shaping the outcome, one cannot miss the role of the monarchy.

So far it was being said that India had withdrawn the subsidy on cooking gas on the eve of the second round of polling to teach Mr. Thinley a lesson for holding talks with China without taking New Delhi into confidence.

According to sources, there was no deliberate effort to damage Mr. Thinley’s electoral prospects and he remains a formidable political figure with whom India would have to do business in future. As the controversy peaked in Bhutan, the government did think of proposing an interim solution but stayed its hand as this would have complicated the issue.

The first round of elections was contested by four parties when the subsidy controversy was nowhere on the horizon. Mr. Thinley’s DPT won 44.52 per cent of the votes. The second round took place after India suspended the subsidy but its vote share only fell by a few decimal points, according to flash results. This means the DPT’s vote share remained unaffected though it had been suggested that India suspension of the subsidy would hurt the party badly.

DPT’s challenger, the People’s Democratic Party (PDP) won only 33 per cent of the votes in the first round. But in the second round, its vote share shot up because of the higher index of opposition unity. After trailing the DPT by 12 percentage points in the first round, the PDP was astute enough to co-opt six candidates from the two parties eliminated after the first round of voting. This aspect has been “carefully kept out of the commentary” on the Bhutan elections, the sources noted.

The DPT’s unchanged vote share means that despite getting just 15 of the 47 seats, the party and Mr. Thinley will continue to exert considerable influence in Bhutan politics. India would hardly have tried to marginalise such a figure, the sources added.

However, Bhutan is the top most priority for India which is overlooked by the foreign secretary of India himself and attributing the withdrawal of subsidies to a “goof up” does not sound convincing. The domestic debates took place before the elections highlight the friction between the monarchy and the DPT (Druk Phuensum Tshogpa).

The DPT convention, which took place in Thimpu highlighted a few critical factors. One of the issues that came to the fore was allegations held against the Palace Secretariat and the Army, accusing them of a non-ethical role in Bhutan’s politics. Since, the army is headed by the King himself, critical conclusions can be drawn from this. Interesting, while these issues have not been discussed much, there has been less political activity in Thimpu post 2013 elections.

India, Bhutan and China

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The China-India-Bhutan triad has become the centre of many conversations. The roots go back to the much talked about Rio +20 summit at Brazil on June 21, 2012, when the then Bhutanese premier met Chinese premier Wen Jiabao, at the sidelines of the summit. The media picked up the conversations of Thinley and Wen.

During the twenty-first boundary talks, it was significant that the talks witnessed a shift from the disputed North-Western area, close to Siliguri corridor to central parts of Bhutan, which is the Jakarlung and Pasamlung valley. This shift and development could be significant, as it raises question on whether some understanding has been reached in the North-Western areas. These facts as they appeared in the media, forces one to ask two simple questions:-

Have Bhutan-China border negotiations already reached some political compromise, or is it that Bhutan is now surrendering slowly to Chinese claiming tactics on its North-Western border with China?

As of today, Bhutan does not have formal diplomatic relations with China. Responding to questions about the possibility of China opening a consulate in Thimphu on the sidelines of the Indian Prime Minister’s visit to Bhutan, Prime Minister Tobgay responded that the resolution of border dispute is a pre-condition to the establishment of formal diplomatic relations and without that, the question of opening a consulate did not arise. This puts any further speculation on this front to rest and provides India more time in building on its exclusive sphere of influence in the country.

Given the contours of India-Bhutan-China border discourse, there are clues here, that there is a pattern in making. How the new government handles these sensitive issues is therefore a question of some reckoning.

The Recent Landmark visit by Indian Prime Minister

Given the background of troubled relationship with majority of its neighbours, in an unprecedented move, Narendra Modi invited all the heads of the SAARC member countries to his swearing-in ceremony at Rashtrapati Bhavan, with nearly all attending. The invitation for all SAARC heads of state to attend his swearing-in was about re-establishing India’s commitment to positive ties with its neighbors and projecting an image of leadership in India’s backyard. One could interpret the move as homage to the Gujral Doctrine.

With this situation in hand, Bhutan was chosen as the first foreign destination after the swearing in event. The visit sought to build business ties, including a hydro-electric deal, other than the process of weaning away Bhutan from the recent overtures made by the Chinese foreign office.

Besides being the friendliest neighbour, Bhutan is of immense strategic importance to India. In the past insurgent groups from Northeast India had taken sanctuary along Bhutan’s treacherous border with the Indian state of Assam and there are reports about Chinese army’s activities in north and northwest Bhutan recently.

For Bhutan, this visit was important to ensure continuity and to be sure of India’s adherence to earlier agreements in the face of a change of guard in New Delhi. The visit was also an opportunity to understand the foreign policy priorities of the new Government.

There were also concerns within the Himalayan kingdom that a ban on the export of certain food items, in order to rein in the inflationary pressures in India, would impact the landlocked country adversely. On the whole, analysts and former Indian diplomats insisted that this is an important relationship where cooperation on a number of areas is of mutual benefit.

HIGHLIGHT of the Joint Statement

• The two sides exchanged views and held discussions on bilateral relations and economic cooperation in regional and multilateral forums.
• Government of India (GoI) reassured Bhutan of its continued commitment to capacity building, especially in the education and IT sectors in Bhutan.
• The GoI satisfaction on the progress made in the hydropower sector and reiterated its commitment to achieving the 10,000MW target.
• GoI exempted Bhutan from any ban or quantitative restrictions on export of milk powder, wheat, edible oil, pulses and non-basmati rice.
• An announcement was made by the GoI regarding doubling of the Nehru-Wangchuck scholarship of Rs 20 million per year. India will also provide grant assistance for establishment of the digital section.