Recently, The Prime Minister concluded his two-day state visit to Bhutan. The visit coincided with the 70th birth anniversary of Bhutan’s Fourth King (K4) Jigme Singye Wangchuck.

Key Highlights from Prime Minister Narendra Modi’s State Visit to Bhutan

• Strategic and Symbolic Engagement
  • Participation: Modi was the Guest of Honour at national celebrations in Thimphu and attended the Global Peace Prayer Festival, where he inaugurated the Kalachakra Empowerment ceremony alongside the King and the Fourth Druk Gyalpo.
  • The visit reinforced Bhutan’s spiritual and cultural links with India, highlighted by the public veneration of the Holy Piprahwa Relics of Lord Buddha from India.

• Hydropower and Energy Cooperation
  • Inauguration: Prime Minister of India  and King Jigme Khesar Namgyel Wangchuck inaugurated the 1,020 MW Punatsangchhu-II Hydroelectric Project, built with Indian support which is a flagship of bilateral energy cooperation.
    • The project will increase Bhutan’s hydropower capacity by ~40%.
    • Electricity export to India has now commenced.
  • Next Steps: Work will resume on the 1,200 MW Punatsangchhu-I Project, the largest joint hydropower venture.
  • Financial Support: India extended a Line of Credit of INR 40 billion to fund the energy projects in Bhutan. 
  • Private Sector Entry: Indian companies such as  Tata Power, Adani Power, and Reliance Power have signed MoUs with Bhutan’s Druk Green Power Corporation to develop new projects 
  • Strategic Context: The energy partnership strengthens India’s regional influence amid China’s growing engagement with Bhutan.
• Connectivity and Border Infrastructure
  • Agreements & Projects:
    • Operationalisation of Darranga Immigration Check Post (2024) and Jogigopha Inland Waterways Terminal & Logistics Park (2025).
    • New MoU on cross-border rail links: Gelephu–Kokrajhar and Samtse–Banarhat, with a Joint Steering Committee to oversee implementation.
    • New Check Post at Hatisar (Assam) announced to support the Gelephu Mindfulness City initiative.
  • Focus: Strengthen trade, logistics, and people-to-people movement between Assam, Bengal, and southern Bhutan.

• Development and Economic Cooperation
  • 13th Five-Year Plan: India reaffirmed “unwavering support” for Bhutan’s development plan and Economic Stimulus Programme, covering roads, agriculture, health, and finance.
  • Fertilisers & Essentials: Institutional mechanisms for uninterrupted supply of essential goods and fertilisers were formalised, with the first consignment delivered under the new system.
• Technological and Financial Integration
  • UPI Expansion (Phase II): Bhutanese visitors to India will soon be able to pay using local apps via QR codes, marking a new phase of digital financial integration.
  • STEM, Fintech, and Space Cooperation: Both nations reviewed progress under the Joint Plan of Action on Space Cooperation, with India contributing teachers and medical professionals to Bhutan’s STEM and healthcare capacity building.
• Cultural and Spiritual Collaboration
  • New Land Grant: India allocated land in Varanasi for a Bhutanese temple and guesthouse.
  • Royal Bhutan Temple Consecration: Recently completed in Rajgir, symbolising enduring Buddhist links.
  • Spiritual Diplomacy: Bhutanese PM described Modi as a “spiritual master,” underlining the shared civilisational ethos.
• Diplomatic and Humanitarian Gestures
  • Bhutan expressed condolences over the Delhi explosion (Nov 10); India appreciated the solidarity.
  • Both nations reaffirmed their commitment to regular high-level exchanges

Background of India- Bhutan Ties

• India and Bhutan share unique bilateral relations based on mutual trust, goodwill and understanding. 
• Historical Foundation (1949): The Treaty of Friendship established formal ties
  • Bhutan agreed to be “guided by India” in external affairs, while India assured non-interference in Bhutan’s internal matters. 
  • This ensured Bhutan’s security and development support during its early nation-building phase.
• Gradual Transition: As Bhutan modernised and asserted its sovereignty, India supported its evolution without friction and helping build Bhutan’s institutions, military, and economic planning structure through Five-Year Plans and technical cooperation.
• Hydropower Partnership (1960s onwards): Became the cornerstone of bilateral ties; India financed and helped build projects like Chukha, Tala, and Punatsangchhu which helped in turning Bhutan’s rivers into a sustainable economic engine and a symbol of mutual benefit.
• 2007 Treaty Revision: Replaced the outdated “guided by India” clause with a commitment to mutual respect for independence, sovereignty, and territorial integrity, transforming the relationship from a protectorate model to a partnership of equals.
• Spiritual Kinship: Bhutan considers India as “gyagar,” the sacred land where Buddhism originated. Buddhism has kept the ties between the two countries resilient. 
  • The recent International Buddhist Confederation (IBC) brought together Buddhist leaders from both nations, emphasizing their shared spiritual connection and strengthening the spiritual bond.
  • IBC: Based in Delhi, India, IBC represents the rich diversity of Buddhism and provides a platform for the global Buddhist community to share its wisdom while at the same time preserving and promoting its shared heritage. Its headquarters is in New Delhi, India.
• Strategic Coordination: Bhutan balances cautious border engagement with China while maintaining India as its primary security and economic partner.

Significance of India- Bhutan Ties

• Trade and Economic Ties: India is Bhutan’s top trade partner and India-Bhutan Agreement on Trade, Commerce and Transit establishes a free trade regime between the two countries and also provides for duty free transit of Bhutanese exports to third countries. 
  • Since 2014, India’s trade with Bhutan has more than tripled (from USD 484 million in 2014–15 to USD 1,777.44 million in 2024–25) accounting for over 80% of Bhutan’s overall trade
  • Investment: As of December 2024, India accounts for approximately 55% of total FDI inflows in Bhutan, making it the largest source of FDI in the country.
  • Bhutan is land-locked: India serves as its key route for all its third-country imports and exports.
• Hydropower Cooperation: Mutually beneficial hydro-power cooperation between India and Bhutan is covered under the 2006 bilateral agreement for cooperation and its Protocol signed in 2009. 
  • Four hydro-electric projects (HEPs) totaling 2136 MW are already operational in Bhutan and are supplying electricity to India. 
  • Two HEPs viz. 1200 MW Punatsangchhu-I, 1020 MW Punatsangchhu-II in Inter-Governmental mode are under various stages of implementation.
  • The revenue generated from selling hydropower to India often accounts for 20%-25% of Bhutan’s national revenue, making it the single largest source of foreign exchange
  • Hydropower also accounts for 63 per cent of Bhutan’s total export revenues.
• Security and Geostrategic Aspect: Bhutan’s location as a buffer state between India and China is critical for Indian national security, especially in the sensitive Chumbi Valley and Doklam region, which are close to India’s Siliguri Corridor
  • It has also cooperated with India and helped to remove militant groups like United Liberation Front of Asom (ULFA) and National Democratic Front of Bodoland (NDFB) from the Himalayan nation.
• Multilateral Cooperation: Both India and Bhutan are members of various regional groupings, including SAARC (South Asian Association for Regional Cooperation) and BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation).
  • Members collaborate to foster economic and technical cooperation, and work towards collective growth and stability in the regions.
• New Areas of Cooperation: Bilateral cooperation has moved into new and emerging areas with full interoperability of the flagship digital project RuPay, Bhutan became the second country to launch the BHIM app, etc.
  • COVID-19 Assistance: Under the Vaccine Maitri Initiative, India gifted around 5.5 lakh doses of the Made-In-India Covishield vaccines to Bhutan.
• Model for Bilateral Relations: The relationship is often cited as an exemplary model of how a large country and small neighbour manage asymmetry through mutual respect, trust, and benefit rather than dominance.
• Countering Internal Threats: Bhutan Cooperation is vital for border management & checking the movement of insurgents and extremist groups operating in India’s North-Eastern states.
• Indian Diaspora: About 50,000 Indians are presently working in Bhutan in various sector signifying close people to people ties between the two countries.

Challenges in India-Bhutan Bilateral Relations

• Bhutan–China Border Talks: Bhutan continues delicate boundary negotiations with China, particularly over the disputed northern tracts and the strategically sensitive Doklam Plateau in western Bhutan
  • Any potential settlement directly affects India’s security calculus, given Doklam’s proximity to the Siliguri Corridor (“Chicken’s Neck”), which connects India’s mainland to its northeastern states.
• Security Concerns: The China-Bhutan boundary talks are raising security concerns for India as they cover the trijunction near the crucial Siliguri Corridor that connects India’s North East with the rest of the country. 
  • Recent developments viz. Chinese construction of villages along the China- Bhutan border and change in the Bhutanese expression over the resolution of the trijunction near Doklam.
• Hydropower Dependencies and Frictions: Hydropower remains the bedrock of India–Bhutan economic cooperation, yet it also introduces asymmetries. 
  • Few see the project financing and tariffs as tilted toward India’s advantage, sparking debate over fair returns and long-term sustainability. 
  • Frequent delays, cost escalations, and environmental concerns surrounding large hydropower projects have added domestic pressure on Thimphu to diversify its energy strategy beyond dependence on Indian-led models.
• Economic Diversification and Employment Pressures: Bhutan faces growing internal challenges like youth unemployment, limited private-sector growth, and overreliance on hydropower revenues. 
  • As its educated youth migrate abroad, Bhutan seeks broader economic diversification, which requires India’s flexibility in trade, labour, and technology cooperation to maintain goodwill and relevance in Bhutan’s reform agenda.
  • Bhutan faces a persistent trade deficit, importing much more from India than it exports, despite preferential trade agreements
  • China Angle: Bhutan heavily relies on India for trade, aid, and assistance which has provided an additional incentive for Bhutan to expedite the negotiations with China. 
    • China’s exports to Bhutan have increased from Rs 200 crore in 2020 to Rs 1,500 crore in 2022. 
• The Bangladesh, Bhutan, India, Nepal (BBIN) Motor Vehicle Agreement: Bhutan withheld its ratification of the agreement, citing environmental concerns.
  • BBIN is a sub-regional initiative to improve economic cooperation and connectivity while bypassing complex political issues of SAARC.
• Environmental and Social Sensitivities: Cross-border projects (rail links, roads, and energy infrastructure) are vital for connectivity but raise concerns over ecological impact, cultural preservation, and local consultation. 
  • Bhutan’s stringent environmental ethos and Gross National Happiness philosophy demand that India’s development initiatives align with Bhutan’s sustainability standards.

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Way Forward

• India’s Diplomatic Balancing: Although there are increasing signs of normalisation of relations between the two countries, India needs to maintain a strategic silence, indicating it does not anticipate these developments to harm its interest.
  • With sensitive sectors like Doklam being unresolved and new claims in the Sakteng region, India needs to be cautious of China’s intention to alter the status quo.
• Recalibrate Hydropower Partnership for Equity and Sustainability: Shift from a donor-recipient model to joint ventures with more balanced cost-sharing and transparent tariff mechanisms.
  • Encourage private sector participation under a regulated framework to diversify funding and reduce delays.
  • Integrate hydropower with regional green energy grids and explore solar-wind-hydro hybrid projects to align with Bhutan’s carbon-negative goals.
• Deepen Strategic Coordination on the China Front: Maintain transparent, high-level strategic consultations with Bhutan on all border developments involving China, especially regarding Doklam and the western sector.
  • Support Bhutan’s sovereign decision-making while ensuring India’s security interests in the Siliguri Corridor are safeguarded through intelligence sharing and joint surveillance.
  • Expand defence cooperation in capacity building, cybersecurity, and border management, while keeping Bhutan’s sensitivities in mind.
• Improving Security Cooperation: The Doklam standoff in 2017 emphasized the importance of security and border management coordination between India and Bhutan. 
  • For instance, India’s deployment of the Military Training Team (IMTRAT) in Bhutan has been crucial for training Bhutanese security forces. 
• Cultural and People-to-People Relations: A number of Bhutanese pilgrims travel to Bodh Gaya, Rajgir, Nalanda, Sikkim, Udayagiri, and other Buddhist sites in India. 
  • Strengthening cultural ties through exchange programs, festivals, and educational initiatives between the two countries can enhance people-to-people contact.
• Foster Economic Diversification Beyond Hydropower: Expand India’s role in technology, startups, tourism, and education through targeted lines of credit and institutional partnerships.
  • Promote joint ventures in agro-processing, digital services, and sustainable industries to create youth employment and reduce Bhutan’s trade deficit.
  • Enhance market access for Bhutanese exports via improved logistics, customs digitisation, and e-commerce integration through India’s digital payment networks.
• Enhance Digital, Financial, and People-to-People Integration: Fast-track UPI–Bhutan Phase II and expand RuPay, BHIM, and fintech interoperability.
  • Facilitate student exchanges and joint academic research in STEM and climate studies.
• Institutionalise Development Cooperation 2.0: Align India’s assistance under Bhutan’s 13th Five-Year Plan (2024–29) with measurable outcomes in health, education, and climate resilience.
  • Shift towards joint monitoring mechanisms for infrastructure projects to improve delivery and accountability.
  • Expand capacity-building programmes for Bhutanese civil servants, engineers, and educators through Indian institutions (IITs, IIMs, NIFT, NID).
• Promote Sustainable Development: Joint efforts on green energy, eco-tourism, disaster resilience, and climate adaptation in line with Bhutan’s Gross National Happiness approach.
  • Green Corridor Expansion: Develop joint solar and hydrogen projects, integrating Bhutan into India’s carbon market ecosystem.

Conclusion

India–Bhutan relations stand as a model of trust and balance in South Asia  evolving from a traditional security and aid framework to a modern partnership rooted in shared values, sustainable development, and strategic convergence.

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