Vibrant trade marks India, Bhutan ties

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Indians do not need a visa to enter Bhutan—and that is one of the great advantages that Indian citizens have. It is also one of those idyllic tourist spots that is popular with visitors—English is spoken with ease by the inhabitants, and that reduces the stress of communication.

The India-Bhutan partnership has been a vibrant example of ‘deep integration’. It has evolved against the backdrop of globalisation: new technologies and more liberal trading regimes have led to higher trade volumes, larger investment flows, and increasing exchange of factors of production.

Many factors lay behind the growing partnership between India and Bhutan, of which three developments are worth mentioning: first, India’s investments in hydropower projects in Bhutan since the 1960s—Asia’s oldest cross-border infrastructure investments. Second, a trade agreement signed between the two countries in 1995 is perhaps India’s first free trade agreement (FTA) with any foreign neighbour. Third, the free flow of investments in industry and services between the two countries since 1990s.

The important distinction is that the cross-border hydropower projects between the two countries have changed the composition of Bhutan’s export-basket. Rising exports of hydro electricity to India has addressed Bhutan’s adverse trade balance with India. Now, Bhutan has trade surplus with India. The real key to the ever-growing partnership between the two countries is the general policy stance by Bhutan in areas like energy and power trading.

The hydropower cooperation between Bhutan and India started with the signing of Jaldhaka agreement in 1961. The Jaldhaka hydropower plant is located on the India side of the Indo-Bhutan border in West Bengal state. The 27 mw Jaldhaka hydropower station stage-I was commissioned in 1967-72 and the stage-II power house, with and installed capacity of 8 mw was commissioned in 1983. The major part of power produced at Jaldhaka hydropower plant was exported to the southern part of Bhutan. This, the benefit of cross-border energy trade, has encouraged Bhutan to seek Indian investments in setting up hydropower plants.