India-Bhutan relationship: Scaling new heights

The spotlight was on Bhutan and India’s five-decade old relationship once again when PM Modi paid a visit to India’s strategically located neighbour in August this year

August 24, 2019

US$633.8 million Mangdechchu power plant project, dubbed as the Bhutan-India friendship project stands as a strong testimony of their five-decade-old relationship

Indian Government is currently helping Bhutan develop a minimum of 10,000 MW of hydropower generation capacity and import the surplus electricity to India by 2020

The US$970,000 ground earth station and SATCOM network, built by India’s space agency, ISRO, was inaugurated during PM Narendra Modi’s state visit to Bhutan

Bhutan continues to be India’s largest aid recipient having been allotted US$394.6 million, out of India’s total US$1.2 billion development aid budget for 2019-20

No two countries in the world understand each other so well or share so much as India and Bhutan – PM Narendra Modi during his recent Bhutan visit in August 2019

A 720MW run-of-river power plant built on the Mangdechhu River in central Bhutan stands as a strong testimony of India and Bhutan’s five-decade-old diplomatic relationship. This US$633.8 million project, dubbed as the Bhutan-India friendship project was developed by the Mangdechhu Hydroelectric Project Authority, jointly constituted by the Indian and Bhutanese governments. India has funded US$476.3 million for the project, with 70% of that as a loan, and 30% as grant. A share of the surplus output will flow into the Indian national grid through Siliguri in West Bengal.

Construction of this project started in June 2012, and the first of the four units of the power plant was commissioned in June 2019. The project is estimated to generate annual energy generation of 2925.25 million units and offset 2.2Mt of CO2 a year from the atmosphere.

When Indian Prime Minister Narendra Modi visited Bhutan in August 2019, he inaugurated this project, along with his Bhutanese counterpart, Lotay Tshering, underscoring once again that hydropower is an important area of cooperation between India and Bhutan. In fact, at his media briefing, PM Modi stressed how the two countries have “transformed the power of the rivers of Bhutan” into not only electricity but also mutual prosperity. “Today, we have achieved another historic milestone of this journey, with the inauguration of the Mangdechchu project,” said the Indian PM.

Hydropower Cooperation

The ongoing cooperation between India and Bhutan in the hydropower sector is covered under a cooperation agreement in Hydropower, which details how India will assist Bhutan to develop a minimum of 10,000 MW of hydropower and import the surplus electricity to India by 2020. 

Even as two more Inter-Governmental (IG) model HEPs — the 1,200 MW Punatsangchhu-I and 1020 MW Punatsangchhu-II are underway, India has also constructed three hydroelectric projects in Bhutan totalling 1,416 mw. So, until now, India has augmented hydropower generation capacity in Bhutan to 2,000 MW.

India and Bhutan mutually benefit from this hydropower cooperation, since India gets a reliable source of inexpensive and clean electricity, while Bhutan is able to generate export revenue. Further, the two sides are looking to start discussions on a 2,500 MW Sankosh project as well, which will add further impetus to this cooperation.

Diversifying India Bhutan relations

With PM Modi’s visit, India is hoping to further strengthen and diversify the bilateral partnership between the two countries, besides increasing economic and development cooperation, people-to-people ties as well as share views on regional matters and other issues of mutual interest. 

In fact, the two countries took the opportunity of PM Modi’s visit to enhance trade and linkages in other areas such as space, education, IT technology and healthcare.

For example, the two prime ministers also inaugurated the US$970,000 ground earth station and SATCOM network, built by India’s space agency, ISRO. This station will allow Bhutan to use a transponder on the South Asian Satellite for broadcast services and disaster management, aimed at enhancing communication, public broadcasting and disaster management coverage. Both countries will cooperate in the construction of small satellites and the use of space technology.

India and Bhutan also went on to ink 10 MoUs in space research, aviation, IT, power and education, giving a new dimension to their relationship. An e-plaque of the interconnection between India’s National Knowledge Network and Bhutan’s Druk Research and Education Network was unveiled during the visit. What the National Knowledge Network is expected to do is to facilitate Bhutan’s students and researchers to access new resources of Indian universities. PM Modi launched the RuPay card in Bhutan to ease financial transaction between the two countries as well, making an additional US$100 million available to Bhutan at the same time, under a stand-by-swap arrangement to meet the foreign exchange requirement.

A Trusted Development Partner

Even as India broadens ties with its strategic neighbour, it continues to retain its role as a development partner. It is a fact that Bhutan continues to be India’s largest aid recipient having been allotted US$394.6 million, out of India’s total US$1.2 billion development aid budget for 2019-20. 

India has financed much of Bhutan’s Five Year Plans as well. An amount of US$625 million was provided for Bhutan’s 11th Five Year plan, which was 68 % of the total assistance that Bhutan received from external sources. For the 12th Five Year Plan that began in 2018, India has given US$694.4 million, and has promised to continue the funding. In fact, Bhutan has actually received a total of US$4.7 billion in aid from India from 2000 to 2017, which is the lion’s share of India’s total foreign aid.

Moreover, before PM Modi’s recent visit, as a special package India provided US$55.6 million to Bhutan to establish a trade support facility to incentivise Bhutanese exporters. There are strong trade ties between the two countries, which continue to thrive as bilateral trade recorded between the two countries in 2018 is US$ 1.2 billion. India is Bhutan’s dominant trade partner, offering a market for 90% of Bhutan’s exports, while 79% of Bhutan’s total imports are from India. 

Bhutan and India’s Neighbourhood First Policy

India-Bhutan’s close partnership forms an important pillar of Indian government’s ‘Neighbourhood First’ policy. This policy, involves India prioritising and entering into strategic engagements with its neighbours, playing a role in the region’s progress through trade, connectivity and people-to-people contacts. It has been no different with Bhutan too, as PM Modi signalled the importance India gives to its neighbours, by making his first foreign trip as PM to Bhutan during his first tenure. 

Subsequently, the two countries have shared high-level political visits and exchanges. And, when the Modi government was voted back to power in May 2019, the heads of state of BIMSTEC’s (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation), including Bhutan’s PM Lotay Tsering, attended PM Modi’s oath taking ceremony. 

What is good so far is that Bhutan and India share strong relations with each other. They are close not just due to geography but both share common history, culture and spiritual traditions. Both are conscious of each other’s needs, India about Bhutan’s sovereignty and Bhutan of India’s security concerns. 

India considers Bhutan as a time-tested friend and a “natural partner”, and is committed to sustain high-level engagement and cooperation to ensure that their relationship is taken to new heights in the future.