India-Bhutan Relations: Background, Historical Milestones, Development in India-Bhutan Relations, Relevance, The China Factor, Challenges in Bilateral Relationship, Way Forward & UPSC PYQs

India and Bhutan share a close and trusted partnership based on mutual understanding and strategic cooperation. Bhutan's location near the Siliguri Corridor and the India-China border makes it vital for India's security interests. Bhutan has supported India in counter-insurgency efforts in the Northeast and remains an important partner in defence cooperation. India is Bhutan's largest trading partner, development partner, and the primary buyer of its hydropower. It is a key partner of India's vision of a zero-carbon world.

India-Bhutan Relations is an important topic for the UPSC Civil Services Examination under General Studies Paper II (International Relations) and General Studies Paper III (Internal Security). It is frequently linked with India's Neighbourhood First Policy, Himalayan geopolitics, hydropower cooperation, border security, connectivity projects, climate diplomacy, the Doklam issue, China's growing influence in the region, and India's strategic interests in the Siliguri Corridor and Northeast India. 

India-Bhutan Relations

India and Bhutan share a close and time-tested relationship, rooted in the 1949 Treaty of Friendship, which laid the foundation for mutual peace, non-interference, and cooperation.

• Bhutan has historically served as a buffer state between India and China. This became evident during the 2017 Doklam standoff, when China’s road construction in the disputed tri-junction area alarmed Bhutan and India, leading to joint efforts to safeguard Bhutanese sovereignty.

• India is Bhutan’s largest trading partner and development aid provider. 

• During Bhutan’s 12th Five-Year Plan, India contributed ₹4,500 crore, which accounted for 73% of Bhutan’s total external grants, reinforcing strong economic and developmental cooperation. 

• A major bilateral infrastructure initiative includes the Kokrajhar–Gelephu rail link, a 69 km project costing ₹3,500 crore, aimed at boosting cross-border connectivity and economic integration. 

• Originally, under the 1949 treaty, Bhutan had to seek India’s guidance in foreign policy and defence matters, including establishing diplomatic relations and arms purchases. 

• However, in 2007, the treaty was revised, allowing Bhutan greater sovereignty in international affairs, including the freedom to buy arms and establish diplomatic ties independently, while still maintaining close strategic coordination with India on matters of mutual interest.

• Bhutan’s governance is uniquely guided by the Gross National Happiness (GNH) index. 

Bhutan is a land-locked country in the eastern Himalayas.

• It shares 699 km of border with four Indian states—Assam, Arunachal Pradesh, West Bengal and Sikkim.

• It is often referred to as India's "all-weather friend" or most trusted neighbour. India and Bhutan do not share any border disputes.

• Bhutan's vast forests and pristine environment also contribute to its role as a natural carbon sink, making it a climate-focused nation and the world’s only carbon-neutral country.

• Due to climate concerns, Bhutan did not sign the BBIN Motor Vehicles Agreement (MVA).

• Notably, Bhutan is the only country in Southeast Asia that has not joined China’s Belt and Road Initiative (BRI). This is because Bhutan does not have diplomatic ties with China.

• Bhutan places significant importance on Gross National Happiness (GNH) and spirituality, shaping its societal values.

Development in India-Bhutan relations

• In January 2025, the King and Queen of Bhutan paid a state visit to India.

• India remains Bhutan’s largest trading partner, accounting for roughly 80 % of its imports and exports.

• During the 2025 visit, India pledged continued support for the Gelephu Mindfulness City Project, a planned 2500 km² zero-carbon economic hub focused on finance, green energy, technology, education and spirituality. 

• Both leaders expressed satisfaction over: 

• The two sides welcomed the opening of their first Integrated Check Post at Daranga (Assam) on the India-Bhutan border.

• The 1020 MW Punatsangchhu-II run-of-the-river plant—built under an inter-governmental agreement (30 % Indian grant, 70 % loan at 10 % interest, repayable in 30 semi-annual instalments)—will export all surplus power to India; hydropower exports already contribute about 80 % of Bhutan’s GDP.

• Hydropower ties are governed by the 2006 bilateral agreement and its 2009 protocol, giving Bhutan access to Indian financing and power markets. 

• India’s open power-exchange system now allows even private Indian firms to purchase Bhutanese electricity, ensuring transparent price discovery.

• India supplies subsidised LPG cylinders to Bhutan; a brief suspension during an earlier anti-India government underscored Bhutan’s energy dependence on India.

• India remains influential in Bhutan’s foreign policy, defence and commerce, despite the 2007 revision of the 1949 Treaty, which ended the clause requiring Thimphu to be “guided” by New Delhi in external affairs.

• A 2000-strong Indian Military Training Team (IMTRAT) is permanently stationed in western Bhutan to train the Royal Bhutan Army—its importance grew after the 2017 Doklam standoff.

Historical Milestones

• 1971: Bhutan joined the United Nations.

• 1972: Bhutan signed a duty-free transit agreement with Bangladesh, boosting trade via the Siliguri Corridor.

• 2014: Prime Minister Modi chose Bhutan for his first foreign visit, launching the “Neighbourhood First” policy; Bhutan’s King attended India’s Independence Day celebrations the same year.

• April 2024: PM Modi received Bhutan’s highest honour—the Order of Druk Gyalpo—and announced ₹10 000 crore (≈ US $1.2 bn) in new support for cooperation in energy, space and other sectors.

• The India–Bhutan Friendship Treaty was revised in 2007, removing the clause that required Bhutan to be "guided by" India in its external affairs, thereby enhancing Bhutan’s sovereignty in foreign policy.

• The India–Bhutan Trade, Commerce and Transit Agreement establishes a free trade regime between the two countries, facilitating smooth bilateral trade and transit.

• Following the 2017 Doklam crisis, the Border Roads Organisation (BRO) has intensified its efforts in constructing road infrastructure to strengthen connectivity between India and Bhutan, particularly through Project DANTAK.

New Initiatives of Cooperation between India and Bhutan

• RuPay Card: India enabled RuPay card acceptance in Bhutan, deepening financial connectivity.

• BHIM App: The two countries launched the BHIM UPI payment platform to facilitate instant transactions.

• Digital Drukyul: India is collaborating with Bhutan on a suite of e-governance and ICT projects under Bhutan’s “Digital Drukyul” flagship.

• STEM-Teacher Programme: India helps Bhutan fill shortages of science, technology, engineering and mathematics teachers through targeted exchanges and training.

• Vaccine Maitri: Under India’s Vaccine Maitri, Bhutan received about 5.5 lakh doses of Covishield, enabling one of the world’s fastest vaccination drives

Relevance of Bhutan to India

The significance of Bhutan for India is as follows:

Strategic Relevance:

• Proximity to Siliguri Corridor: Bhutan, a landlocked nation, shares a 699 km border with India, running along the states of Sikkim, West Bengal, Assam, and Arunachal Pradesh. Its proximity to the strategically sensitive Siliguri Corridor makes it of significant importance to India.

• Bhutan’s strategic position between India and China makes it vital for India’s security, serving as a buffer state that blocks direct Chinese access to Indian territory.

• The Chumbi Valley, located near the Siliguri Corridor, is another area of strategic concern for India.

• The Chumbi Valley holds both strategic and economic importance due to its proximity to the Amochhu River. Known as the Bhutanese route to Tibet, it provides a short and direct pathway for communication with Tibet.

• Internal Security: Bhutan is vital for India's internal security. Its location near India’s northeastern states means that insurgents or hostile elements could use Bhutan as a haven for launching attacks or engaging in smuggling, trafficking, and other destabilising activities.

• Operation All Clear: In 2003, India and Bhutan worked together in a joint military operation, known as Operation All Clear, to eliminate insurgent groups of northeast hiding in Bhutanese (India-Bhutan border) territory.

Economic Relevance:

• India plays a crucial role in Bhutan's economy, providing significant budgetary support and serving as Bhutan's largest trading partner and investor.

• Bilateral trade between the two countries amounts to approximately USD 1.5 billion.

• The power tariff for exported electricity to India is a key element of Bhutan's economy. In fact, 80% of Bhutan's exports are directed to India.

• Budgetary Support: India routinely contributes to Bhutan’s Five-Year Plan.

• Bhutan remained the largest recipient of India’s foreign aid, with an allocation of Rs 2,150 crore for 2025-26, up from Rs 2,068 crore last year.

• Financial Support: In November 2022, a USD 200 million deal was implemented under the SAARC currency swap arrangement to manage Indian rupee liquidity and alleviate foreign exchange pressure.

• The 2007 India-Bhutan Friendship Treaty and the 2016 Trade, Commerce, and Transit Agreement establish a free-trade framework, allowing Bhutan’s goods to transit through India duty-free.

• Connectivity / Infrastructure Projects: 

• Gelephu: India is a key investor and developmental partner for Gelephu Spiritual City.

• Sarpang SEZ: The aim is to create Gelephu Mindfulness City (GMC) that integrates economic growth with mindfulness, holistic living, and sustainability.

• Railway Line: In 2023, India started developing the Gelephu (Sarpang in Bhutan) to Kokrajhar (Assam in India) railway link. The project is set to be completed by 2026.

• The major infrastructure project under BRO (Border Road Organisation) was Project Dantak.

• Integrated Check Post: In November 2024, the Immigration Check Post in Darranga, Assam, for entry/exit of third-country nationals on the India-Bhutan border was inaugurated.

• India is exploring options for connecting Bhutan to Bangladesh to develop transmission lines and to power trade.

• Key Hydropower Projects: Chhukha hydropower plant (CHP) in south-west Bhutan.

  • Mangdechhu Hydroelectric Power Project (720 Megawatts)

    1. It was handed over by India to Druk Green Power Corporation (DGPC) in December 2022.

  • Punatsangchhu-I & Punatsangchhu-II 

Space Cooperation:

• Space cooperation has emerged as a key area, highlighted by the launch of the India-Bhutan SAT in November 2022.

Culture:

• Civilizational Links: India and Bhutan share deep-rooted cultural and civilizational ties, particularly through the shared heritage of Buddhism.

• Common Heritage: The historical and cultural connections between India and Bhutan are rich and intertwined.

• India’s Soft Power in Bhutan: India holds considerable soft power in Bhutan through its cultural, educational, and diplomatic ties.

• Tourism and Regional Hub: India is keen on fostering tourism ties with Bhutan.

• Pilgrimages to Buddhist sites in India continue to serve as a vital cultural link.

Border Disputes Between China and Bhutan

• Doklam Plateau: This is a trilateral junction where the borders of India, China, and Bhutan meet. India considers Doklam to be part of Bhutan and is concerned that it could be ceded to China in a border settlement. 

• Importance: If this happens, China could gain control of the area, potentially allowing it to monitor the sensitive Siliguri Corridor, which connects mainland India to the Northeast.

• Faceoff: The faceoff in the Doklam area between Indian and Chinese soldiers started in June 2017, when a large construction party of the Chinese Army entered the area with road construction equipment and tried to build a road without informing India and Bhutan.

• Sakteng Wildlife Sanctuary: In June 2020, China made a surprising claim on Sakteng Wildlife Sanctuary in Trashigang district of Bhutan at the Global Environment Facility (GEF) Council by opposing funding for a project in the Wildlife Sanctuary.

• Despite Chinese objections, the project was cleared by a majority of the council members.

China Factor

• Not Joined BRI: Bhutan is the only country apart from India that has not joined China’s Belt and Road Initiative (BRI).

• Increased Diplomatic Pressure: China in recent years has stepped up its efforts to establish full-fledged diplomatic ties with Bhutan and to expedite negotiations to reach a settlement for the vexed border dispute.

• Chinese Conflict: Chinese conflict and pressure tactics over Doklam and Sakteng Wildlife Sanctuary.

Issues / Challenges in India-Bhutan Relations

The recent issues in India-Bhutan Relations are:

• Bhutan has expressed a desire for greater autonomy in its foreign policy and aims for more parity at the diplomatic level.

• Bhutan wants India to respect its sovereignty and not interfere in the internal/domestic aspects of Bhutan.

• In 1949, Bhutan and India signed the Treaty of Peace and Friendship, which established India as a guiding partner in Bhutan’s foreign policy.

• Revision of Treaty (2007): However, a revision of the treaty in 2007 saw changes to Article 2, removing India’s role in guiding Bhutan’s foreign policy. Additionally, Article 4 was modified to allow Bhutan to import weapons from third parties. 

• Despite these changes, both countries reaffirmed that their territories would not be used against each other, ensuring continued peace and cooperation between them.

• The country also seeks a better trade balance and increased market access.

• There is a concern about the growing influence of China in the region and the pressure it may place on Bhutan’s strategic decisions.

• Bhutan decided not to sign the Motor Vehicle Agreement (MVA), citing environmental concerns.

• Project Dantak: While successful, this project did create some tensions, as some Bhutanese citizens felt it impacted their sovereignty.

• There are also concerns of a delivery deficit where India over-promises and under-delivers.

Way Ahead

Measures to strengthen bilateral relations between the two countries are as follows:

• India needs to recognise Bhutan’s legitimate concerns and accommodate them.

• India should play the role of a developmental partner while ensuring that it respects Bhutan’s sovereignty and self-respect.

• Engaging with like-minded countries to further promote development and capacity building in Bhutan should be the way ahead.

• Promoting tourism through joint initiatives can attract Indian visitors to Bhutan, strengthening economic ties and deepening people-to-people relations.

UPSC Previous Year Questions 

Q. Project “Mausam” is considered a unique foreign policy initiative of the Indian government to improve relationships with its neighbors. Does the project have a strategic dimension? Discuss. [200 word,12.5 Marks]