India-Bhutan Relations: Convergences & Divergences

India’s Prime Minister recently inaugurated the 1,020 MW Punatsangchhu-II hydropower project during his official state visit to Bhutan. He also attended the 70^th birthday celebrations of Jigme Singye Wangchuck, the revered Fourth King and father of the current monarch.

About Bhutan

Bhutan is a landlocked country in south-central Asia, situated on the eastern ridges of the Himalayas. | Capital: Thimpu.
Borders: Tibet Autonomous Region of China to the north and west, and the Indian states of West Bengal and Assam to the south, Arunachal Pradesh to the east, and Sikkim to the southwest.

Significance of Bhutan for India

Geographical significance: Shares borders with four Indian states: Assam, Arunachal Pradesh, West Bengal, and Sikkim.
- Bhutan provides access to India’s northeastern states through the Siliguri Corridor.
Cultural Significance: Both countries have Buddhist population & India helps preserve Bhutan’s cultural heritage.
Strategic Significance: It shares borders with India and China, acting as a buffer state between the two regional powers and contributes to regional security.
Regional Stability: Bhutan’s stability is crucial for maintaining regional peace and stability in South Asia and overall stability of the region.
Policy Anchor: Strong ties with Bhutan support India’s ‘Neighbourhood First’ policy through cooperation in trade, infrastructure, and security.
Diplomatic Alignment: Bhutan’s alignment with India in regional and global forums strengthens India’s diplomatic influence and balances China’s growing presence.

India-Bhutan Relations

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Evolution of India-Bhutan Relations

Treaty of Punakha (1910): Made Bhutan a protected state of British India, allowing Britain to control its foreign policy and defence affairs during regional unrest.
Treaty of Peace and Friendship (1949): Recognized Bhutan’s sovereignty and established perpetual peace and friendship. Bhutan agreed to be guided by India in external affairs.
Agreement on Trade, Commerce and Transit (1972): Created a free trade regime and allowed duty-free movement of Bhutan’s exports and imports through India.
Agreement on Cooperation in Hydropower (2006): Provided a framework for India to support Bhutan’s hydropower projects and facilitate the import of surplus electricity.
Revised India–Bhutan Friendship Treaty (2007): Ended the 1949 guidance clause and reaffirmed equal partnership based on mutual interests.

India-Bhutan Relations: Convergences

Bilateral Trade: 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 nearly quadrupled from USD 484 million in 2014-15 to USD 1744.44 million in 2024-25, accounting for about 80% of Bhutan’s overall trade.
Cultural ties: Both countries share a common cultural heritage of Buddhism and have historical links dating back to the 8th century when a Buddhist monk, Padmasambhava, went from India to Bhutan and led the Nyingmapa sect of Buddhism.
Development Partnership: Since Bhutan’s first Five Year Plan in 1961, India has closely partnered with Bhutan in its socio-economic development in line with the priorities of the people of Bhutan.
- 71 Project Tied Assistance projects and 572 High Impact Community Development Projects have been agreed upon between the two sides and are under implementation.
Connectivity: Railway links like Kokrajhar–Gelephu and Banarhat–Samtse are under active development to strengthen border and trade connectivity.
Hydro-power cooperation: India has cooperated with Bhutan for the construction of five major hydro-electric projects in Bhutan totaling 2986 MW, including Chukha HEP (1988), Kurichhu HEP (2001), Tala HEP (2007-08), Mangdechhu HEP (2019) and Punatsangchhu-II HEP (2024).
Space Cooperation: Both countries jointly inaugurated the Ground Earth Station of the South Asia Satellite (SAS) in Thimphu and launched India-Bhutan SAT, the first satellite jointly developed by India and Bhutan.
Education and Capacity Building: Over 1000 scholarships are being provided annually by GoI for Bhutanese students to study in India. About 50,000 Indians are presently working in Bhutan in sectors such as infrastructure development, hydropower, education, trade and commerce, etc.
- Under the Indian Technical and Economic Cooperation program (ITEC program), about 325 seats for training at world-class training institutions covering various fields are offered annually to Bhutan.

India-Bhutan Relations: Divergences

Chinese Engagement: China’s increasing border talks and infrastructure projects challenge India’s traditional strategic influence in Bhutan.
Economic Diversification: Bhutan’s efforts to diversify its economy and seek new partners may lead to policy differences over trade and investment priorities.
Connectivity Constraints: The mountainous terrain and limited road and rail networks hinder trade and regional integration, while environmental concerns delay new connectivity projects.
Perception Gap: A section of the Bhutanese view India’s dominant role as overbearing, reinforcing the perception of India as a ‘big brother’.
Border Security: Despite joint operations like ‘All Clear’ (2003-04), insurgent groups still exploit the porous border areas as temporary hideouts.