Indian Prime Minister Narendra Modi’s recently concluded two-day state visit (August 17-18) to Bhutan sought to address some of the key issues in the bilateral relationship. First, it was directed at diversifying the areas of engagement between the two countries by seeking to extend cooperation in space research and technology and collaboration in the areas of education and health services. Cooperation in the sphere of education would include areas such as information and technology and cultural study such as Buddhism.

Second, it sought to allay the Bhutanese concerns as regards the India-funded hydroelectricity projects and the burden of debts owed to India.

Third, the visit and signing of 10 memoranda of understanding between the two countries were desirable in view of growing Chinese influence in South Asia. Bhutan in its search for more investment and development in the areas of tourism, education and agriculture has been seeking Chinese cooperation as well as India’s. For instance, according to official statistics, the number of Chinese tourists visiting Bhutan surged from just 20 a decade ago to 6,421 in 2017. In this context, the diversification of bilateral relations and infusion of resources into the Himalayan state would help bilateral relations with India and keep Chinese influence at bay.

Fourth, the visit was timely to gain unambiguous Bhutanese support for India’s abrogation of special provisions for Jammu and Kashmir granted under Article 370 of the Indian constitution.

Fifth, the visit was also significant in setting the tone of the historic relationship that was partly affected by fears as well as negative perceptions emanating from within Bhutan that the small country might be dragged into power games during the Doklam standoff between India and China.

The Friendship Treaty of 1949 between India and Bhutan retained some of the hegemonic elements underlying the earlier agreement between British India and the Himalayan kingdom in 1910 (Bhutan became a protectorate of British India) and stipulated that Bhutan would seek India’s opinions in conducting its foreign relations. However, the treaty heralded a new epoch in India-Bhutan relations that mitigated the Bhutanese concerns that the country could emerge as another “princely state” of India. The treaty not only guaranteed Bhutan sovereignty to conduct its internal affairs, the Dewathang tract in Assam taken away by the British from the Bhutanese was returned and a meager British subsidy was replaced by substantial development assistance from India.

It has been observed that many Bhutanese viewed India more positively than China, which was seen as a bully for its annexation of neighboring Tibet. The historical bonding between India and Bhutan is underlined by the fact Bhutan is the only South Asian country besides India that is not part of the Chinese Belt and Road Initiative considered to be vital to keep Indian sensitivities to Chinese strategic ambitions in the neighborhood at bay.

Close India-Bhutan strategic ties were also noticed in the small Himalayan country’s refusal to the Chinese offer of a much larger portion of disputed territory in the north where Bhutan has higher economic stakes, in exchange for the relatively small plateau with limited domestic interests – Doklam – underlining the Bhutanese sensitivities to India’s security stake in the plateau. On an issue vital to India such as its abrogation of Article 370, Foreign Secretary Vijay Gokhale said: “Bhutan has shown understanding that this is a matter which is India’s internal affairs.”

Underlining the special relations that India and Bhutan enjoyed, some experts preferred to argue that unlike Nepal, Bhutan has never played the China card against India. Whereas Bhutan’s cozy relations with India and its location mitigated New Delhi’s concerns as to the way to deal with militants in the Northeast and hence played a significant role in  maintaining internal stability, India, for its part, established the Indian Military Training Team to train Bhutanese forces. The number of soldiers trained by India kept steadily rising. The two countries set up the India-Bhutan Joint Group on Border Management and Security, and India also expressed its willingness to extend regular logistic support to Bhutanese forces.

Further, Guru Padmasambhava, a Buddhist saint, traversed from India to Bhutan and helped spread Buddhism, bringing people of both countries into close cultural association. Historically, people-to-people contacts and the Drukpa sect of Tibetan Buddhism characterized close relations between Bhutan and Ladakh.

Bilateral concerns

With the revision of the 1949 India-Bhutan Friendship Treaty in 2007, Bhutan has not only diversified its diplomatic relations with many countries, New Delhi’s concerns stemmed from slackening of its control over Bhutan’s foreign policy that propelled it to guard cautiously against any Bhutanese move to court China.

Indian concerns as regards Chinese influence have prevented Bhutan from allowing China a diplomatic presence. However, former prime minister Jigme Thinley’s suspicious move to court China and discuss with his Chinese counterpart issues allegedly pertaining to formal diplomatic presence and a land-swapping deal involving the strategically located areas in the tri-junction of India-Bhutan and China led India to withdraw subsidies on kerosene and cooking gas as a measure to pile up pressure on Bhutan to force it to change its stance. This was subsequently withdrawn, and the succeeding Prime Minister Tobgay Tshering maintained close relations with the Indian leadership by putting a pause on diplomatic overtures to Beijing. However, many experts argue that the territorial confrontation at the Doklam junction raised Bhutan’s security concerns and many Bhutanese elites as well as many in the public believe they should settle their border with China rather than be drawn into India-China territorial conflict.

Rising national debt in the shape of Indian loans in the hydropower sector remained one of the prominent concerns for the current leadership apart from trade imbalance in favor of India. India’s export of the lion’s share of essential goods in cheaper rates to Bhutan adversely impacted the domestic sectors within the country. It was argued by some experts that India as a much greater neighboring power took advantage of Bhutan’s landlocked location in designing bilateral trade and commerce largely in its favor. Statistics pointed to the slanted relations – whereas 60% of Bhutan’s expenditure is on imports from India, 90-95% of what Bhutan borrows from India finds its way back to India.

The significance of hydropower to the Bhutanese economy is underlined by the fact that two hydropower stations at Chhuka (1,800 megawatts) and Tala (1,400MW) provide 40% of government revenue and account for a quarter of the country’s gross domestic product. These hydropower projects are financed by India. However, they have been marked by delays in construction and commissioning in Bhutan by Indian companies, and the returns from the collaboration in the projects have not been satisfactory according to Indian estimates, leading to enhanced interest rates and a surge in Bhutan’s debts. Furthermore, these projects have not been viewed favorably by many Bhutanese because of their failure to generate adequate employment opportunities and over their damaging impact on the environment.

The Indian government under Modi’s leadership has been criticized for replacing the financing formula for the projects, which was earlier 60% grant and 40% loans, by 30% grant and 70% loans, contributing to Bhutanese national debt, and interest rates on the loans have also been raised. Concerns have also been expressed as to the Indian government’s plans to convert these government-owned projects in addition to other new projects into joint ventures, with Indian companies having major shares.

Aimed at addressing some of the economic predicaments of the Himalayan state, Modi’s recent visit has made it clear that India’s largest electricity trader, PTC India, will buy surplus power from the Bhutanese government-run Druk Green Power Corp, which runs the 720MW Mangdechhu hydropower project, and supply Indian states such as Assam, Bihar, Odisha and West Bengal.

Besides, the Indian prime minister launched the RuPay card to tighten the bilateral relationship in digital payments, trade and tourism and committed an additional US$100 million under a standby swap arrangement to meet the foreign-exchange requirements of Bhutan.

In the cultural sphere, while India has been perceived as lukewarm in leveraging its deep religious and cultural links with Bhutan compared with China, which is capitalizing on Buddhism more effectively in the Himalayan region, Prime Minister Modi’s attempts at forging bilateral cooperation in the field of cultural studies would help overcome this lag.

Infrastructure, investment and employment

Bhutan will have to strive to address issues pertaining to unemployment, investment and infrastructural deficiencies in the foreseeable future. For instance, lack of infrastructure led to a paradox that even while power was generated and made available to people by the government at a much affordable price, a significantly lower number of households (only 66% of Bhutanese households and 39% of its villages) remained electrified, indicating that hydropower projects can contribute to Bhutan’s development if India extends its support in infrastructural development that could supply the hydropower resources to people and give them employment as well.

India’s offer of aid and trade benefits will only strengthen the perception that it is not the historic relationship but rather growing Chinese regional influence that led India to offer these benefits. India needs to enhance its investment and assist the country in employment generation.

Further, India must mitigate the Bhutanese concerns pertaining to increasing debts and trade imbalance. India’s assistance to Bhutan must be viewed from the perspective of enabling the small South Asian country in the areas of military and politics as well as economy. India needs to strengthen the Bhutanese private sector and help in building their capacities. It must not evaluate its assistance to the process of Bhutan’s development in terms of profit. Sustenance of the historical relations between the two countries will depend how India uses its big-power status and rising economic prominence in the benefit of a friendly neighboring as well as strategically vital country.