Bhutan’s new PM’s economic agenda to “affect relations” with New Delhi 

Bhutan’s new Prime Minister Dr Lotay Tshering’s economic agenda could affect the Himalayan Kingdom’s relations with India, foreign policy watchers in India have said.

“If they carry out their economic agenda and diversify their economy away from hydropower, then India would surely be affected,” reckons Professor SD Muni, a former diplomat and Professor Emeritus at Jawaharlal Nehru University (JNU).

“Bhutan’s economy is heavily dependent on hydropower, most of which is exported to India. That has created a situation of external debt. They want to get out of the external debt,” highlighted Professor Muni, adding that “reducing the economic thrust on hydropower and diversifying into other sectors was all but a natural strategy for Bhutan to follow.”

“If they move away from hydropower, the economic content of India-Bhutan relationship will change. They would then want us to get into other areas. If the Chinese develop diplomatic ties with Bhutan, they would be able to help Bhutan diversify much faster,” states Muni.

Diversifying Bhutan’s hydropower-reliant economy was one of the major election pledges of the incoming Centre-Left Druk Nyamrup Tshogpa (DNT) government, led by former urologist Dr Lotay Tshering.

“We are determined more than any other party to diversify the economy by accelerating private sector growth and investing in agriculture, mining, manufacturing and service sectors,” stated DNT’s manifesto, as it expressed concern over the country’s current “external trade situation.”

“Bhutan’s external trade situation is very fragile and highly vulnerable to exogenous shocks. In terms of direction of trade, share of trade with India to total trade constitutes more than 80%,” noted the manifesto. “As per the State of the Nation Report (2018), Hydropower loan comprises Nu (Bhutanese ngultrum) 132 billion (of the total external debt), while the rest is non-hydropower loan of Nu 37 billion.

Bilateral trade between Thimpu and New Delhi stood at $516 million in 2015. A trade deficit of $150 million that year, as has been a general pattern, has been flagged as a major issue between the two neighbours.

DNT’s victory over DPT (Druk Phuensum Tshogpa, or Bhutan Peace and Prosperity Party) in last week’s vote is being viewed as popular backing of Dr Tshering’s proposed economic policies, which, India’s former foreign secretary Kanwal Sibal says, would present more opportunities for China.

Having secured 17 of the 47 seats in the Lower House of Bhutanese Parliament in a two-party run-off vote, the DPT had been arguing for construction of more hydel projects, the mainstay of Bhutan’s nascent economy.

“The party manifestos in democratic elections are designed to reflect popular aspirations. Diversifying sources of revenue is a legitimate aspiration,” said Sibal, as he predicted a “deepening competition” between China and India in coming days.

Despite having no formal diplomatic ties, China remains Bhutan’s third largest source of imports, with Chinese nationals constituting a fifth of the total tourists visiting Bhutan.

“Even without having diplomatic relations with China, a third of their consumer imports are from China. And they are coming into Bhutan through third countries. The Chinese are already there in Bhutan and it’s up to India to keep them in check,” reckons SD Muni, who is a frequent visitor to the Bhutan.

Still advantages India, Beijing is catching up. Despite a growing push by China to gain a toehold in Bhutan, India is well-placed to resist China’s increasing involvement in the land-locked country.

The 11th Five-year Plan of the Bhutanese government (2013-18) witnessed India contributing nearly ₹4,500 crore, or 68% of the total foreign aid assistance. According to news reports citing official sources, the Indian government is keen on helping the new government carry out its economic diversification agenda.

Within hours of Dr Tshering’s election victory last week, Prime Minister Narendra Modi rang him and reiterated New Delhi’s commitment to Bhutan’s development, “based on the priorities and interests of the people and the government of Bhutan.”

According to the Ministry of External Affairs (MEA), an invitation has also been extended by Modi to Dr Tshering to visit India. Believes Kanwal Sibal, “India-Bhutan relations have a texture, which is so well developed on all fronts that an election result won’t change materially the bilateral nature of relations.”

“The Bhutanese monarchy has always played a very important role in stabilising the bilateral relations and that should continue,” he adds. That doesn’t mean that Beijing hasn’t been trying.

The Election Commission of Bhutan took note of several social media complaints in the lead up to the run-off vote, which involved discussion on country’s foreign policy priorities (read antagonism towards India).

However, SD Muni notes that such anti-India sentiments are shared only in a section of Bhutanese population, which he says is a “younger demographic.”

However, he warns, “The Chinese will continue to make efforts in this regard. The Chinese may try to incite certain sections of the Bhutanese society against India.”

This article first appeared in National Herald on Sunday