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 Indo-Bhutan Relations Recent Trends*
Tashi Choden"
Introduction
The Kingdom of Bhutan is often described as being physically
small with limited economic scope and military might. In spite
of these limitations, Bhutan has earned the reputation of
being a peaceful country where the development of threats
from militancy, terrorism, and economic disparity within itself
has virtually been absent. In this sense, Bhutan has thus far
been more fortunate than many of its neighbours in the
South Asian region.
This has been in part owing to its self-isolationist policy up
until the second half of the 20th century, and the preservation
and promotion of a strong sense of identity that has ensured
social cohesion and unity. Having never been colonized, nor
feeling any direct impact of two world wars and the cold war,
Bhutan has been spared the conflicts and turmoil such as
that of the legacy of hatred and mistrust generated by the
partition of British India into present-day India and Pakistan.
Nevertheless, Bhutanese have historically been sensitive to
issues of security with frequent disturbance occurring from
internal warring factions prior to unification and
establishment of the monarchy in 1907. External threat was
present during the 17th and 18th centuries with several failed
attempts at invasion from the Tibetans; 19 th century Bhutan
saw the loss of the Assam and Bengal Duars to British India.1
As such, preserving its sovereign independence and territorial
integrity has always been a matter of great importance for
Bhutan.
*   This    paper   was   presented   in   the   Regional   Conference   on
"Comprehensive Security in South Asia," Institute of Foreign Affairs,
Kathmandu, Nepal
** Researcher, The Centre for Bhutan Studies, Thimphu
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 By the early half of the 20th century, developments in the
Himalayan region prompted Bhutan to re-evaluate the
usefulness of its isolationist policy. Within this context,
Bhutan began to develop political orientation towards its
southern neighbour - nurturing a close relationship with
India was one way of enhancing its own territorial security
while at the same time enhancing the prospects for
socioeconomic development. As for India with its contentious
state of relations with China, Bhutan's strategic location
between the two ensured the service of a buffer state that
could enhance its own security.
The initiation of Indo-Bhutan friendship as it stands today, is
credited to the efforts of Indian Prime Minister Pandit
Jawahalal Nehru and His Majesty Jigme Dorji Wangchuck,
the third King of Bhutan. Their meeting in the 1950s sparked
the dialogue for development cooperation. Looking back over
the decades since then, and under the continued guidance of
the present king His Majesty Jigme Singye Wangchuck,
Indian assistance has greatly expanded in every field of
Bhutan's development and socioeconomic growth. To this day,
India continues to provide the largest and most diverse
assistance to Bhutan among all other donors. Often cited as a
"shining" example of friendship and cooperation between a
large country and a small neighbour, relations between the
two continue to grow at all levels.
I.   A Background on Indo-Bhutan Relations
Recorded historic relations between Bhutan and India date
back to 747 A.D., when the great Indian saint
Padmasambhava introduced Buddhism in Bhutan, which has
since then permeated all aspects of Bhutanese life. Aside from
such shared cultural and religious heritage, other areas of
interaction developed during the British rule in India, which
include several Anglo-Bhutanese skirmishes and battles that
were consequently followed by treaties and agreements. It was
within this period of interaction with the British that trade
between Bhutanese and Indians was also recorded to have
taken place for the first time (1873).
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 China's invasion of Tibet (1910-12) and subsequent claims
made on Bhutan resulted in the signing of the Treaty of
Punakha in 1910 with British India. Although this treaty
served to expel any claims that China might have tried to
make, it did not define Bhutan's status technically or legally;
for the Bhutanese, this was a source of uncertainty over its
relations with India at the time that the British rule was
nearing an end. After India's independence in 1947,
'standstill agreements' with Sikkim, Nepal and Tibet were
signed to continue existing relations until new agreements
were made; for Bhutan, its status became clearer following
Nehru's invitation for a Bhutanese delegation to participate in
the Asian Relations Conference in 1947. Following this, the
negotiation for a fresh Indo-Bhutan Treaty started in the
summer of 1949.
The basis for bilateral relations between India and Bhutan is
formed by the Indo-Bhutan Treaty of 1949, which provides for,
among others, "perpetual peace and friendship, free trade and
commerce and equal justice to each other's citizens."2 The
much speculated Article 2 in the Treaty, in principle, calls for
Bhutan to seek India's advice in external matters, while India
pledges non-interference in Bhutan's internal affairs.
The geopolitical scene in the entire Himalayan region and
Indian sun-continent underwent great change following the
proclamation of the People's Republic of China in 1949 and
the takeover of Tibet by the People's Liberation Army in 1950.
These events, plus the presence of Chinese troops near
Bhutan's border, the annexation of Bhutanese enclaves in
Tibet and Chinese claims all led Bhutan to re-evaluate its
traditional policy of isolation; the need to develop its lines of
communications with India became an urgent necessity.
Consequently, Bhutan was more inclined to develop relations
with India, and the process of socioeconomic development
began thereafter with Indian assistance. For India's own
security too, the stability of Himalayan states falling within its
strategic interest was a crucial factor to consider. With border
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 tensions between India and China escalating into military
conflict in 1962, India could not afford Bhutan to be a weak
buffer state.
Based on this backdrop, Indo-Bhutan relations began to take
on concrete form following state visits made by the third king,
His Majesty Jigme Dorji Wangchuck to India, and by Prime
Minister Jahawalal Nehru to Bhutan between 1954 to 1961.
Besides emphasizing India's recognition of Bhutan's
independence and sovereignty in his public statement in Paro,
Nehru's visit in 1958 was also significant with discussions
initiated for development cooperation between the two
countries.
Formal bilateral relations between Bhutan and India were
established in January 1968 with the appointment of a
special officer of the Government of India to Bhutan. The
India House (Embassy of India in Bhutan) was inaugurated
on May 14, 1968 and Resident Representatives were
exchanged in 1971. Ambassadorial level relations began with
the upgrading of residents to embassies in 1978.
Beginning with India, Bhutan began to diversify its relations
in the international community, thereby projecting its status
as an independent and sovereign nation. With India
sponsoring Bhutan's application for UN membership in 1971,
the leaders of the two countries demonstrated that Article 2 of
the Indo-Bhutan Treaty was not a restricting factor in the
exercise of Bhutan's foreign policy.
II. Areas of Cooperation
Development Assistance and Economic Relations
Planned development in Bhutan began in 1961, with the first
two Five Year Plans (FYP) wholly financed by the Government
of India (GOI). Over the years, Indian assistance has
increased steadily from Rs. 107 million in the First FYP to Rs.
9000 million in the Eighth FYP. Road construction by the
Indian Border Roads Organization started in the first FYP
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 (1962-66); the second FYP (1966-71) focused on public works,
education, agriculture and health. While Bhutan's source of
foreign aid has diversified significantly since it became a
member of the United Nations, India continues to be the
major donor of external aid to Bhutan - Indian assistance
accounted for about 41 percent of total external outlay during
the 8th FYP (1997-2002). Over the last four decades, India has
provided assistance mainly in the social sectors such as
education and human resource development, health,
hydropower development, agriculture, and roads. In addition,
India also provides partial or full grant assistance and
gradually, economic relations have evolved with cooperation
extending towards mutually beneficial projects such as in
hydropower development and industrial projects.
These projects are taken up outside of the FYP programmes
with many major works awarded to Indian companies.
Important projects invested in under Government of India-
Royal Government of Bhutan (GOI-RGOB) cooperation
include the Chhukha (336MW), Kurichhu (60MW), and Tala
(1020MW) Hydro Power Projects; the Penden and Dungsam
Cement Projects; and the Paro Airport Project. A
Memorandum of Understanding for preparing a detailed
project report for the proposed 870 MW Puna Tsangchhu
Hydropower Project was also signed between the two
governments in September 2003. With the huge Indian
market for electricity currently facing domestic supply
difficulties, Bhutan has high potential to offer supply relief to
India - presently, approximately ninety percent of electricity
generated in Bhutan is exported to India, and this only
translates to 0.5 of the total demand. Other mutual benefits
generated by the Indian assisted and Bhutanese government
owned projects include assured business opportunities in the
manufacturing and other industries in both India and Bhutan.
Trade and Investment
A new era in Bhutan's foreign trade commenced following the
closure of trade routes between Bhutan and Tibet in 1960,
and   the   construction   of roads  linking  the   Bengal-Assam
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 plains to Phuentsholing, and Phuentsholing to Thimphu and
Paro in 1962.
Over the period of 1981-2001, Bhutan's exports to India
accounted for an average of 86.5 percent of its exports, and
imports from India accounted for an average 79 percent of the
total imports. Bhutan's main items for export to India are
electricity, mineral products, product of chemical industries,
base metals and products, and wood and wood products with
hydropower generation being the most important area of
comparative advantage. Imports from India include a wide
range of items including machinery, mechanical appliances,
base metals, electronic items, foodstuff and other basic
necessities and consumer items.
Besides trade, Indian involvement extends into many other
areas of Bhutan's private and public sector activities. In the
area of Foreign Direct Investment, Bhutan has so far pursued
a conservative policy, and the first and only foreign investor
in Bhutan for almost two decades since 1971 was the State
Bank of India (SBI). The SBI has worked in collaboration with
the Bank of Bhutan (BOB) since its identification as partner
in management and share holding in the capital of BOB, in
addition to imparting banking expertise. BOB's collaboration
with SBI was last renewed on January 1, 2002 for a period of
up to December 31, 2006.
In addition, Indian nationals operate a range of small-scale
trading and service activities on licenses issued by the
Ministry of Trade and Industry in Bhutan. Such ventures
include small shops trading in a variety of products like
grocery, auto parts and furniture, as well as scrap dealers,
distribution and dealership agencies. Indians in Bhutan also
run hotels/restaurants, saloons, tailoring and cobbler
services. On a larger scale, Indian investment in Bhutan
exists in the manufacturing and processing industries,
construction, service, engineering, steel and electronic
industries, and consultancy. Indian companies such as the
Jaiprakash Industries and NHPC carry out major works for
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 the Tala and Kurichhu Power Projects respectively. Similarly,
many other Indian and Bhutanese companies (or joint
ventures) benefit from the current requirements of massive
power projects and manufacturing industries.
Although there is no in-depth study available on the level of
informal trade between the two, it has been noted3 that such
activities are tolerated in practice partly because of the open
and porous border between Bhutan and India. Another
informal but common practice is the operation of a wide
range of businesses by Indian persons using the licenses of
Bhutanese nationals as indigenous fronts. These include
anything from small shops trading in petty consumer items to
large-scale investment businesses such as construction.
The prevalence of small-scale Indian investment as well as
business fronting is understandably concentrated in southern
Bhutan owing to proximity of bordering Indian towns. The
border town of Phuentsholing is the center of commercial hub
in the country from where the exit and entry of goods as well
as travelers largely takes place; the Indian town Jaigoan
under Jaipalguri district is "just across the fence" where
tailor-made foods suited to Bhutanese needs are especially
stocked. Although statistics are not available, it is apparent
that the business community in Jaigoan has prospered in
large part owing to the level of trading activities with
Bhutanese businessmen and other customers. (CBS et al:
2004, pp 79-189).
Labour Relations
Beginning with the inception of development plans in the
1960s, Bhutan's requirement of semi-skilled and unskilled
labour has been filled in by expatriates, particularly Indians,
first in road construction and then in other sectors such as
mining, agro-based industries and hydropower projects with
the shift in development priorities. This dependence sprung
from the lack of in-country experience and skills in road
construction as well as technical skills and equipment. Indian
personnel and labourers were recruited in large numbers,
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 mainly from neighbouring Indian states. While Indian
labourers found employment on Bhutanese roads, Bhutanese
labourers (who were mostly farmers) were spared the sole
brunt of undertaking the construction works. Currently, the
public road maintenance is entrusted mainly to Project
Dantak4, and at any given time it has an average 2000 Indian
labourers working on roads in various parts of Bhutan.
Considering that the modern system of formal education in
Bhutan was initiated only after 1955, and that it was a few
decades before the first generation of qualified Bhutanese
entered the civil service, many Indian personnel were
recruited by the Bhutanese government to fill in
administrative posts and others related to development
programmes in the 1960s. While Bhutanese nationals have
gradually replaced Indians in these posts, many continue to
serve in both public corporations and the civil service to this
day.5 However, a turning point has come where the successes
of modern education have helped to gradually replace Indian
expatriates in various professions such as teaching, health
and medics, engineering, accounting and administration.
Additional Areas of Cooperation
India's assistance towards Bhutan's security and defense
arrangements, specifically in training and equipping the Royal
Bhutan Army, was prompted by several factors that include
Bhutan's location in India's strategic defense system, the
Chinese occupation of Tibet, the 1962 border war between
India and China and perception of increasing Chinese threat.
Besides training and courses for army personnel conducted
by the Indian Military Training Team (IMTRAT) in the past,
Bhutanese army cadets continue to be sent to the National
Defense Academy (NDA) in Pune, and the Indian Military
Academy (IMA) in Dehra Dun, India. The presence of IMTRAT
can be seen when one travels between the districts of Paro,
Haa and Thimphu in western Bhutan. The headquarters of
the IMTRAT in Bhutan is located in Haa District, which is
adjacent to Tibet's Chumbi valley. Its establishment in
Thimphu includes the Friendship Hospital, locally called the
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 IMTRAT hospital, which offers invaluable services to
Bhutanese patients as well. In addition to building schools
and hospitals in the country, an important defense
consideration has been the construction of extensive roads by
India's Border Roads Organization, called Project DANTAK in
Bhutan.
The benefits of Indo-Bhutan relations are also prominent in
other areas such as education and culture where there is a
high level of interaction. The Indian government provides
about fifty scholarships annually to Bhutanese students for
their higher studies in India. A significant number of Indian
teachers contribute to education in Bhutan with many of
them posted to teach in remote areas in Bhutan. In addition,
Sherubtse College in eastern Bhutan has developed into a
premier institution for tertiary education in Bhutan with its
affiliation to the Delhi University in India. The exchange of
cultural troupes and artists between Bhutan and India has
also become a regular activity under the bilateral cultural
exchange programme. In 2001 a cultural exhibition titled,
'The Living Religious and Cultural Traditions of Bhutan" was
hosted by the Indian government at New Delhi and Kolkata;
consequently, a six-month Festival of India was held in
Bhutan from June to November 2003 - the main purpose of
these initiatives has been to strengthen the ties of friendship,
and to create awareness among the people of the many areas
of commonalities between the two countries.
Other areas of cooperation include bilateral civil aviation
dating back to 1983 when Bhutan's national airline Druk Air,
began commercial operations to India with flights from Paro
to Calcutta and later from Paro to Delhi in 1988. An Air
Services Agreement signed with India in September 1991
granted Druk Air Fifth Freedom Rights; following a new
commercial agreement in May 1998, these Rights were
provided on concessional terms. A Government of India
notification that same year qualified Druk Air to avail of fuel
at bonded rates, and its fuel continues to be supplied by the
Indian Oil Company.  By 2000,  Druk Air was also granted
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 permission to use Bagdogra as a diversionary airport for
refueling, technical halts and during bad weather conditions.
With permission from the Department of Civil Aviation in
India, Druk Air inaugurated flights on the Paro-Bodhgaya
sector on 11th November 2003, thus offering services to
Bhutanese making their annual pilgrimages.
In the international fora too, India and Bhutan can be seen to
be supportive of each other. While Bhutan has not always
voted identically with India on every issue, thereby expressing
its own choices, it has maintained a consistent pattern of
support to India on many occasions and significant issues. To
name a few, these include the vote on the Comprehensive
Test Ban Treaty (CTBT), the establishment of Nuclear
Weapons Free Zone in South Asia, India's aspirations to be a
permanent member of the UN Security Council, India's
candidature to various international bodies, negotiations in
the WTO, and the importance of India in the success of
SAARC. 6
A strong tradition of official visits at various levels has further
enabled views to be exchanged and areas of cooperation to be
enhanced between the two countries. Besides everyday
people-to-people contact at the informal level, ministers,
parliamentarians, civil servants as well as representatives of
the business community all make regular official visits. His
Majesty King Jigme Singye Wangchuck himself has made at
least fourteen visits to India since 1971, with the most recent
one being in September 2003.
III. Some Issues of Concern
While India and Bhutan share an extraordinarily warm
friendship, issues such as the state of relations with China
continue be a cause of some concern to both countries.
Considering the importance of Bhutan's economic relations
with India, the liberalization policies in India and its
implications for Bhutan is an additional development to take
into account. More recently, the illegal presence of militants
using Bhutan as a base and hideout while rebelling against
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 the Indian government resulted in the Bhutanese army taking
military action to flush out the insurgents.
Relations with China
In light of the contentious state of Indo-China relations, it is
no secret that Bhutan with its strategic location figures into
India's security interests. Therefore, whatever course Indo-
China relations may follow in the future, it is likely that these
bear implications for Indo-Bhutan relations as well. While it
may not be realistic to expect that Indo-China relations will
normalize in the immediate future, it is not something that
should be considered impossible over the course of time.
Some confidence building measures are being taken by both
sides, for example by discussing the boundary issue, with
regular exchange of high level visits, and with agreements
made to enhance cooperation in areas such as culture, trade,
science and technology. In the long term, normalization in
Indo-China relations and consequently, the degree to which
strategic considerations influence India's policy towards
Bhutan is a possibility that should be considered. And even
as current geo-political and geo-economic realities ensure
that India will continue to be one of the most critical elements
in Bhutan's foreign relations, Bhutan has to consider the
reality of China to its north. As such, Bhutan maintaining
friendly relations with China without undermining its own
relations with India is a challenge that deserves careful
consideration.
India's liberalization policies
Up until the 1990s, Bhutan has enjoyed more or less
protected status in its trade relations with India. With
economic liberalization on the rise in India, however, Bhutan
is facing a gradual loss of this status, and unless Bhutanese
industries are able to remain competitive they could lose their
market share in the increasingly open market in India.
Bhutan has already felt the impact of the reform in India's
subsidy policies that has resulted in a gradual phasing out of
subsidies  and  a decrease  in its  budget  for  assistance  to
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 Bhutan. Bhutan will also have to face the effects that would
be brought on by India gradually moving toward privatizing
its power, petroleum and other traditional public sectors.
Military operations against Indian militants
Over the last decade or so, the illicit establishment of camps
by the United Liberation Front of Assam (ULFA), National
Democratic Front of Bodos (NDFB) and the Kamtapuri
Liberation Organization (KLO) militant outfits7 in the dense
jungles of south-east Bhutan has been a matter of great
concern and security threat for Bhutan. In addition to
hampering businesses and the implementation of
development activities in many parts of the country, the
presence of these militants was a potential cause of affecting
the friendly relations enjoyed by Bhutan and India.
In consideration of the close ties between Bhutan and India,
and recognizing that the militants (despite their actions) are
nonetheless Indian citizens from the neighbouring states of
Assam and West Bengal, the Bhutanese government
repeatedly urged the militants to leave the country peacefully.
But in spite of the Bhutanese government having spent
almost six to seven years to find a peaceful solution8 to the
problem, it was apparent by the last months of 2003 that the
militants had no real intention of leaving Bhutan until their
own objectives had been fulfilled9.
In December 2003, with the talks with the ULFA and NDFB
having failed, and the KLO not even responding, the
Bhutanese government's repeated attempts at a peaceful
solution came to an end. On the morning of 15th December
2003, the Bhutanese army finally launched military
operations to flush out the militants. Even as security forces
took over all thirty of the militants' camps into the second day
of offensive, the combing process and the implications of the
operations have brought forth the reality, that the long spell
of peace and tranquility that has been the proud inheritance
of the present Bhutanese generation can no longer be taken
for granted. (CBS et al: 2004, pp 79-189)
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 Although the operation was considered successful, Bhutan
has come to realize the need to be wary of possible
repercussions following such an action. Having long kept the
military option at bay in consideration of possible retaliation
against Bhutanese from the militants as well as their relatives
and supporters from Assam, Bhutanese have recently had to
be much more cautious than usual while traveling through
Indian territory.10
Concluding Remarks
Aware of its small size, lack of advanced technology and
military defense capabilities, Bhutan has had to rely on
alternative security measures such as "national identity for
cultural cohesion, and neutrality to renew its long-term
security"11 An added bonus to this strength has been its
natural location in the Himalayas along the lines of India's
strategic security interests, and consequent prospects for
internal growth.
However, such a location has been a factor not only of
strength but also its vulnerability. Being a landlocked,
mountainous country, Bhutan's trade routes and access to
the sea pass through India and it is thus largely dependent
on the latter for its economic security. While Bhutan has
diversified its political and economic relations and has
attained a good level of socio-economic development, the
reality of its position and shared borders with India means
that destabilizing elements from external sources continue to
pose threats to its stability. These have been evident from the
spillover effects of militancy from Assam, and of cross-border
economic migration driven by regional poverty.
As the world globalizes and traditional barriers are broken
down, Bhutan too is being swept into the process. Along the
way, its traditional strongholds of national identity and
cultural cohesion will continue to face increasing challenges,
just as its long spell of internal peace and tranquility was
challenged by issues manifesting out of regional situations
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 like poverty, economic migration and militancy.
As Bhutanese, however, one can take pride in the fact the
leadership, in particular the present king, has guided the
country along a unique development path of its own without
submitting incorrigibly to external influences. And while the
illicit presence of the ULFA-NDFB-KLO militants on
Bhutanese soil was a shared concern of both India and
Bhutan, Bhutanese leaders were clear on their stand that
such immediate security threat to its sovereignty would be
taken in its stride. Thus, the military operations launched by
the Bhutanese army to flush out the militants in December
2003 not only provided assurance of Bhutan's capability to
safeguard its own security, it was also another commitment
made toward the maintenance of strong Indo-Bhutan ties.
Ever since Bhutan and India embarked upon the road of
friendship and cooperation, the two countries have
demonstrated that a journey of peace and mutual benefit
between two neighbours can be pursued, even in a region
where the level of economic disparity, terrorism and conflict is
high. We can perhaps look at such a relation as a model of
friendship and cooperation between close neighbours.
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126
 Ura, Karma. 2002. "Perceptions of Security" pp 59-79, in
Dipankar Banerjee ed., South Asian Security: Futures.
Colombo: Regional Centre for Strategic Studies, Sri Lanka.
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1 Ura, Karma. 2002. "Perceptions of Security pp 59-79, in Dipankar
Banerjee ed., South Asian Security: Futures. Colombo: Regional
Centre for Strategic Studies, Sri Lanka.
2 As quoted on the website of the Indian Embassy in Bhutan at
<http: www. eoithimphu. org/ indo. html>
3 The study on Economic and Political Relations between Bhutan and
the Neighbouring Countries (CBS et al: 2004) notes that much of the
informal trade are not considered illegal economic activities, but
more as 'extra-legal' trading; informal trade is described here as
those that are unregistered, unlicensed, and not recorded by the
government.
4 An organization of the Indian Border Roads Organization
5 In 2002, there were a total of 11,499 Indians working in 30 Indian
companies undertaking joint ventures in Bhutan. There were also
734 Indians working in 24 different public corporations. In the civil
service, Indians number 871 of which 128 are regular employees
and 734 contract employees. Nearly 84% of them are teachers in
Bhutanese schools. As of August 2003, the total number of regular
Indian employees was 32,776. (CBS et al, pp 79-189)
6 CBS etal, pp 79-189.
7 The ULFA, fighting for the independence of Assam, NDFB, fighting
for an independent state of Bodoland, and KLO, fighting for an
independent state of Kamtapur had an estimated 1560 militants in
13 camps, 740 militants in 12 camps, and 430 militants in 5 camps
respectively, as reported by Bhutan's Home Minister to the 81st
session of the National Assembly prior to the launch of military
operations in December 2003.
8 The issue was deliberated extensively in successive sessions of the
National Assembly - the 77th session in 1999 passed a three-point
resolution to make the militants leave peacefully: steps would be
taken to stop rations and supplies from reaching militant camps;
any Bhutanese or Indian national helping militants on Bhutanese
territory would be prosecuted under the National Security Act; and
the government would hold talks with the leaders of the militants to
reach a peaceful solution.
9 Prior to the final round of talks with the militants in December
2003, the Bhutanese government had held four rounds of talks with
127
 the ULFA, reaching an agreement during the 3rd round that camps
would be removed and their cardres reduced in phases; however,
camps were soon relocated and cardre strength increased. In two
rounds of meeting with the NDFB, they gave no commitment to leave
Bhutan and thereafter refused to come for further talks; as for the
KLO, correspondences made by the Bhutanese government to
remove their camps were flatly ignored, and talks scheduled to be
held with a high-level delegation was instead attended by junior level
leaders of the outfit.
10 Trade routes to at least twelve of twenty districts of Bhutan have
to pass through Indian territory in Assam.
11 Quoted from Karma Ura's "Perceptions of Security" pp 59-79, in
Dipankar Banerjee ed., South Asian Security: Futures. Colombo:
Regional Centre for Strategic Studies, Sri Lanka, 2002.
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