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Bhutan-India Relations

Updated on January 09, 2005

Please read article  India Bhutan Relations: A Strategic Partnership page on this website for the latest update on India-Bhutan relations

1. Introduction

2. Political Relations

3. Indian Militants

4. Economic Cooperation

5. Eighth Five Year Plan (FYP)

6. Projects

7. Educational and  technical Cooperation

8. HM King of Bhutan's visit to India

1. INTRODUCTION

Bhutan has unique relationship with India. Indo-Bhutan relationship is  relatively trouble free, compared to other bilateral relations in the South Asian region. Bhutan and India  share traditional,  warm, friendly and close bilateral relations – both at political and economic level.

2. POLITICAL RELATIONS

Bhutan signed a political Treaty with independent India in 1949, much before it stepped out of its self-imposed isolation in early sixties. According to  Article 2 of the Indo-Bhutan Treaty, 1949, at least theoretically, Bhutan is required to consult India  in the conduct of its external relations. Although, the basic framework of the bilateral relations may be the Treaty of Friendship and Cooperation of 1949. However, the Treaty which was signed in 1949, has never become an irritant factor  in the traditional warm relationship between the two countries.  There are frequent state visits between two countries. The Indian ministers and top army brass also keep visiting  Bhutan,  frequently. India is responsible for Bhutanese security. Indian Military Training Team (IMTRAT) is based in Bhutan to provide  training to  Bhutanese security forces.

3. Indian Militants

Since a decade, the militants of North-east India have taken un-authorized shelter in the territories of Bhutan. The militants of United Liberation Front of Assom (ULFA),  the National Democratic Front of Bodoland (NDFB) and Kamtapuri Liberation Organisation are operating against Indian security forces from their bases in southern, eastern and central Bhutan.

The  United Liberation Front of Assom (ULFA) and other militant organisations  have been demanding independence from India.  The Indian army, the Government of India and the state government of Assam have been persuading the government of Bhutan to initiate a joint Indo-Bhutan army operation to drive  out these militants from Bhutan. The United Liberation Front of Assom (ULFA) and the National Democratic Front of Bodoland (NDFB) have been outlawed by the government of India.

The 78th session of Bhutan’s National Assembly held in June, 2000 decided four-pronged strategies to resolve the ULFA-Bodo problem: (1) to continue peaceful negotiations with the militants to try and make them leave the country peacefully; (2) to stop ration and other supplies to the camps of the militants; (3)to punish all persons who helped the militants in accordance with the National Security Act; and, (4) as a last resort, use military action to evict them from Bhutanese soil.

The government of Bhutan under Indian pressure finally launched the " Operation All Clear" to flush out the Indian militants on December 15, 2003. Bhutanese army was aided by the Indian army. The operation ended on January 15, 2004.

The presence of Indian militants in Bhutanese territories is a matter of serious concerns to India. Please visit  Security

4. EECONOMIC COOPERATION

Bhutan’s economy is wholly dependent on India. It was the benevolent Nehru, who put Bhutan on the path of economic development. As a least developed country Bhutan depends on foreign aids for financing its developmental programmes and establishment costs. India has been the largest donor of external aid to Bhutan and its main development partner. It was at the Indian initiatives that Bhutan launched its First Five Year Economic Development Plan in 1961. Bhutan’s first and second Five Year Economic Development Plan (1962-67) were totally funded by India. India has committed Nu/Rs.9000 million (  US $ 215 million) for the current Eighth Plan (1997-2002). India has contributed generously from the First to the current Eighth Five Year Plan (1997-2002).

The total outlay of each of  eight five year plans (FYP) of Bhutan and India’s contribution  in the respective plan is as follows:  

(in million of Nu/IRS )

5. Eighth Five Year Plan (FYP)

During the current  Eighth Five Year Plan (1997-2002), India has provided assistance primarily  in the development of infrastructure. Indian assistance during this plan period is to the tune of Nu/IRS 9,000 million - Nu/IRS 4,000 million as development subsidy and Nu/IRS  5,000 million as project-tied funds. The assistance provided during the Eighth Plan are exclusive  of  the three mega projects, - Tala Hydroelectricity Project (THPC),  Kurichu Hydro Electric Project (KHEP),  and the Dungsam Cement Plant, which are funded separately. Some of the projects envisaged during the current plan period are as follows:

Project

Cost estimate in  millions

 of Nu/IRS

6. PROJECTS

All 20 districts in Bhutan are accessible by road, constructed entirely by Indian Border Road Organisation. India has funded all major projects in Bhutan, some of which are as follows:

1. Penden Cement Plant

2. Chhukha Hydro Power Corporation (CHPC)

3. Paro Airport

4. Bhutan Broadcasting station

5. Bhutan-India microwave link

6. Exploration, survey and mapping of mineral resources

7. All  major Highways ( road)

Penden Cement  project

In  February 1982, Bhutan’s first cement plant,  Penden Cement Project started it commercial production. Its installed capacity was the 300 tons per day. It was constructed at a cost of NU/IRS 142 million, funded by the Government of India. The surplus is exported to neighbouring Indian states.

Chhukha hydroelectricity project (CHEP)

The current online Chhukha Hydroelectricity Project (CHEP) was entirely funded by the Government of India. India constructed  the 336 mega watt Chhukha Hydroelectricity Project (CHEP) - Bhutan’s first mega power project on a turnkey basis.  The project costing  NU/IRS 2,470 million (  then approximately US $ 200 million) was successfully commissioned in October 1998. India provided a 60 percent grants and 40 percent loan at 5 percent per annum repayable in 15 years in equated annual instalments, the first repayment commencing 3 years after each withdrawal of the loan.

The Government of India at the insistence of Bhutan increased  tariff of the Chukha power on 01 April 1997. The power tariff was revised from 50 paise to Re 1.00. India further revised the tariff  to  Rs 1.50 per unit on July 01, 1999.

The project was handed over to Bhutanese management  in June 1991. 70% of power  generated  by this project  is exported  to India. It has an installed capacity of 336 MW. In 1998, electricity valued at Rs1338.8 million was exported  to India. In 2000, It exported electricity worth Rs 1650 million to India.   In 2000, according to the government newspaper Kuensel, the Chhukha Hydro Power Corporation alone contributed Nu. 2007.3 million ( US $ 40.75 million –Eds) to the national exchequer. Today, the power sector contributes about 45 percent to the gross revenue generation in the country and accounts for about 11 percent of the GDP.” Ngultrum is at par with Indian rupees. The Chhukha Hydro Power Corporation (CHPC) manages the project.

According to the government sources, by the year 2006, Bhutan would be exporting about 6,400 MUs of power annually. The revenue from hydropower projects along with earnings from the other traditional revenue sources could reach about Nu. 15 billion annually.  

Paro Airport  

The Government of India  provided financial and technical assistance in the construction (runway and the hangar ) of Bhutan’s first and only Paro airport in 1990. The Government of India also funded   the Phase II construction ( terminal building, control tower and cargo warehouse ) of  Paro Airport on turnkey basis at a  cost Nu/IRS 217.5 million. It was completed in April 1999.

PROJECTS UNDER IMPLEMENTATION

Tala Hydro-electric Project: In the early eighties, the two new potential hydroelectricity projects -- 1020 MW Tala Hydroelectric Project (THEP) and 500 MW Chhukha II -- were identified as two downstream hydroelectricity projects of Chhukha. The 1020 MW THEP was taken up for implantation in 1996. It is located in Tala, 60 km up from Phuntsholing, the gateway to Bhutan. The THPC has an installed capacity of 1,020 MW. It is a  run-of-the-river project on the Wangchu river, downstream of Chukha Hydroelectric project . Please visit Hydro project- Power projects of Bhutan page for full information on Bhutan's hydro power project and Indian assistance.

It will comprise  a 92-meters dam, a 22.25 kilometre long head race tunnel, an underground power house complex at Tala village to house 6 units of 170 MW generators. and three 440 KV single-circuit transmission lines to reach  the Ind0- Bhutan border.

The original cost for the THEP was estimated at Bhutanese (Ngultrum) Nu 14.80 billion ( Us $ 0.3 billion). The cost of project  has been revised at Nu/Rs 30,000 million ( approximately $ 600 million)  The THPC is the biggest Indo-Bhutan joint project.

This project is entirely funded by the Government of India (GOI) by way of grants and loan. India will provide a 60 percent grants and 40 percent loan at 9 percent interest. It will produce 3,962 million units (MUs) of power in a "90 percent dependable year". The construction of initial work on the dam, power tunnel, power house complex and transmission system was started in 1998. It is targeted for commissioning in the year 2004-2005. Bharat Heavy Electrical Limited of India is the supplier of the complete generating plant at a cost of Nu. 4,210 million. Tala Hydro-electric Project Authority (THPA) manages the project. M/s Hindustan Construction Company, M/s Larsen and Toubro and M/S Jaiprakash Industries are other Indian contractors.

Kurichhu hydro-electric Project: The second hydroelectricity project was planned and implemented in quick succession. The Kurichhu hydro-power project is having an installed capacity of 60 MW. The project planned to install 45 MW with three 15 MW generators in the first phase and later install the fourth generator. The project is located in Gyepshing, Mongar in eastern Bhutan. The project will generate 322 MUs in a "90 percent dependable year".

The cost of Kurichhu project in the initial agreement was estimated at Nu. 2,560 million and was revised in 1994 to Nu. 2,860 million. It was again revised at Nu.5600 million ( $ 110 million)

The project is also being fully funded by the GOI. The GOI will provide 60 percent as a grant the and 40 percent as a loan at 10.75 percent interest. The pay-back period will be mutually agreed upon. The National Hydro-power Corporation of India is the turn-key contractor of the project. The Kurichhu project is expected o be fully commissioned by June 2002. The two generating units of the Kurichu hydroelectric project have been connected to the Indian grid at Salakati, Assam state of India. The National Hydroelectric Power Corporation (India) Limited (NHPC) completed the 198 kilometres of 132kv transmission line from Gyelposhing to Gelegphug via Pema Gatshel, Nganglam, Panbang and Tingtibi. The Kurichhu power will be available to the districts of Mongar, Trashigang, Trashiyangtshel, Pema Gatshel, Samdrup Jongkhar, Gaylegphug and Zhemgnag. The Water and Power Consultancy Services (India) Limited of India is the consultants to the project.

Dungsum Cement Plant (DCP)

The Government of India has  agreed to provide Nu/IRS. 4,000 million for the construction of Dungsam Cement Project (DCP). Out of which, Nu/IRS. 1,000 million is earmarked for infrastructural development.  The DCP is a dry-process plant. It is envisaged to produce  500,000 tons per year. The project is a joint venture between ACC Ltd., India and the Royal Government of Bhutan. Initially, the ACC, India held  20% equity  with  the balance   80% equity  remaining with the Royal Government of Bhutan. However, due to security reasons, ACC has withdrawn from the DCP. The DCP has been facing problems  due to the insurgency problems in the north-east India.

FUTURE PROJECTS

Sunkosh: On January 4, 1993, Bhutan and  India in signed a MoU for the preparation of the DPR for the Sankosh Multi-purpose Project. The Sunkosh Multipurpose Project (SMP) is the biggest identified hydroelectricity project of Bhutan. The Central Water Commission of India (CWC) was retained as the contractor to prepare a Detailed Project Report (DPR) on the project. Accordingly, after three years’ study, the CWC submitted a 37 volume DPR on the SMP, to the Royal Government of Bhutan (RGOB) on December 30, 1997.

The SMP could be Bhutan’s largest hydroelectricity project. According to the DPR, it would have two power stations with an installed capacity of 4,060 MW of power. The cost is estimated at  Nu 77.93 billion ( Us $ 1.60 billion). The cost could escalate in ten years. The SMP will be located at Karbari village in Sarbhang district in Southern Bhutan. The project would comprise two dams, the main one for power generation and the second to feed a 141 kilometres irrigation canal. Out of the proposed 141 kilometres canal, only 13 kilometres of canal will be inside Bhutan while the rest will be in India. It would supply power to the entire North-east and reach as far as Merrut in Uttar Pradesh state of India. It would irrigate and supply drinking water to the Indian states of West Bengal and Bihar. The project is expected to take about 10 years to complete.

Bhutan has already  submitted two project reports on the development of 360 MW Mangdechhu and the 870 MW Puna Tsangchhu  hydroelectric projects to the Government of India. It has requested the Government of India to consider financing of these two hydroelectricity projects along the Kurichhu and Tala modalities. The Mangdechhu power project is estimated to cost about US$ 349 million, whereas  the Puna Tsangchhu  will cost around  US$ 813 million.  

TRADE

Bhutan enjoys complete free trade with India. A completely free trade regime exists  between India and Bhutan. Despite the efforts of diversification, India has been the biggest market for Bhutan’s products and imports. India is not only the major foreign aid contributor to Bhutan’s economic development, but a mainstay for its economic survival. India wholly financed the first two five year economic development programmes. As a landlocked country, India had been and is a major trading partner of Bhutan in her economic development and external trade. Before eighties, third country import and export was non existent in Bhutan. Indian aid accounts for more than sixty percent in its  fifth five year economic development plan.

According to Royal Monetary Authority of Bhutan, in 2000/2001, Bhutan's total exports to India was Rs.4.91 billion. This included the sale of electricity to India. It   constituted 94.4% of Bhutan's total exports. In the same period Bhutan imported goods worth Rs.7.38 billion from India  equivalent to  78.7% of its total imports.

Indo-Bhutan Trade Treaty  was signed in 1972. It is renewed every ten years – up to  March, 2005. The statistics on import from and export to India  are given below:

( in Millions of NU/IRS)

1990-91