Indian PM Modi’s visit puts Bhutan in the spotlight

This June, Narendra Modi, India’s new Prime Minister, has chosen Bhutan as the destination for his first foreign visit. This decision has important consequences for Bhutan and its future economic path.

Narendra Modi’s visit to Bhutan has set a tone for his future foreign policy endeavors. Although Bhutan was not the obvious first choice for foreign policy observers, India and Bhutan share a 605 km border, and relations between the two have been strong. Some even feel like Bhutan is India’s only genuinely friendly neighbour, and a visit to Bhutan would not create domestic political issues there, as would be the case in Bangladesh or Sri Lanka.

India is Bhutan’s largest trade partner, and has contributed massively to its development up to this point, in many ways. Choosing Bhutan as his first official visit will undoubtedly improve relations between the two nations. However, it also risks underscoring India’s relations with its direct neighbours.

Bhutanese and Indian relations have been strong albeit a few hiccups, and were renewed via a new treaty of friendship consolidating the basis of their bilateral relationship in 2007. This treaty further confirmed the 1949 India-Bhutan Friendship Treaty, covering economic as well as political relations. Former Prime Minister Manmohan Singh visited Bhutan in 2008, in support of Bhutan’s gradual shift from monarchy to democracy.

On top of support and visits, India has also provided large amounts of support to Bhutan. For example, India has invested $1.2 billion on the construction of three hydropower projects in Bhutan. Since the construction of these, the plan has been for India to purchase 5,000 megawatts of electricity from Bhutan by 2020. The financial injection as a result of these projects has been crucial for Bhutan’s development.

Bhutan’s economic growth has largely been based on agriculture and forestry, which provide livelihood for over 60% of Bhutan’s population. Even this sector relies on Indian development projects, as Indian migrant labour and financial assistance has contributed to the construction of most infrastructure.

One of the main aspects of Bhutanese life holding back development has been the intentional environmental protection. Fauna throughout the relatively small nation has made it hard for many infrastructure projects to be completed, but may now be offering Bhutan the chance to attract more tourists.

As of 2009, Bhutan’s GDP (PPP) was estimated at $4.34 billion, placing Bhutan 162nd on the global GDP (PPP) list. Although this makes it one of the smallest economies in the world, economic growth in the fiscal year 2013 averaged at 5.2%.

This average rate is expected to increase for the end of this year, with hydropower construction projects expanding, and an increased focus on improving the country’s tourism infrastructure as part of the nation’s eleventh five-year plan which kicked off this year. In the past, hydroelectric-based projects have contributed to its economy; with the ninth five-year plan (2002-2007) averaging 9.5% GDP growth as a result of these projects.

Further cooperation with India has a lot of potential for Bhutan, as its landscape provides the perfect backdrop for hydroelectric projects and there is also a real potential for the tourist industry to develop. Perhaps with continuing support from India, Bhutan can continue growing and realize its potential.

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Categories: Politics, Southeast Asia

Author:Margaux Schreurs

Margaux is a graduate from the London School of Economics and Political Science with an MSc China in Comparative Perspective with a focus on a comparison between North Korea and China. Having grown up in Singapore, she travels widely in Asia and has spent extended amounts of time in China and Vietnam, and speaks both Chinese and Vietnamese. She has a BA Development Studies and Economics from the School of Oriental and African Studies with a regional focus on East and Southeast Asia, and focuses mainly on these regions as a freelance writer. As a recipient of the Chinese Government Scholarship, she is studying Chinese at Beijing Language and Culture University, in preparation for further academic research in China.

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