Mutually beneficial economic ties have been the main pillar of India-Bhutan bilateral relations. India continues to be the largest trading and development partner of Bhutan. Planned development efforts in Bhutan began in the early 1960s. The First Five Year Plan (FYP) of Bhutan was launched in 1961. Since then, India has been extending financial assistance to Bhutan’s FYPs. India continues to be the principal donor for the socio-economic development of Bhutan. So far, ten Five Year Plans of Bhutan have been completed, two of which were totally financed by India (1st & 2nd). India has also contributed to Bhutan's development outside the framework of the Five Year Plans. Plan-wise allocations made by the Royal Government, showing India's contribution therein, are as follows: -
[in Rs. crores]
% of India’s Contribution
1961 – 66 [1st Plan]
1966 – 71 [2nd Plan]
1971 – 76 [3rd Plan]
1976 – 81 [4th Plan]
1981 – 87 [5th Plan]
1987 – 92 [6th Plan]
1992 – 97 [7th Plan]
1997 – 2002 [8th Plan]
2002-2008 [9th Plan]
2008-2013 [10th Plan]
2013-2018 [11th Plan]
* Excludes our assistance towards mega projects
Some of the major projects in Bhutan undertaken with Indian assistance in the past include 1020 MW Tala Hydroelectric Project, 336 MW Chukha Hydroelectric Project, 60 MW Kurichhu Hydroelectric Project, Penden Cement Plant, Paro Airport, Bhutan Broadcasting Station, Major Highways, Electricity Transmission and Distribution System, Indo-Bhutan Microwave Link, Exploration of Mineral Resources, and Survey and Mapping.
India’s assistance to the Tenth Five –Year Plan (2008-13) of RGoB
GoI committed assistance worth Rs. / Nu. 3400 crores. Out of this Rs. 2000 crore was provided as Project Tied Assistance (PTA), for funding 71 mutually agreed projects in key socio-economic areas of agriculture, ICT, media, health, tertiary education, school education, scholarships, labour and human resource development, roads, energy, civil aviation, urban development, road safety and transport, judiciary, culture, constitutional offices and media.
Rs. 700 crore was provided for Small Development Projects (SDP). These projects are short gestation and community-oriented, focusing mainly on drinking water schemes, irrigation channels, farm roads and other infrastructure in rural areas. Focused on basic socio-economic development, these projects are found to be an effective tool for addressing rural poverty as they have a direct bearing on the lives of the grassroots people. Under the SDP, some 1800 projects were completed in the 10th FYP.
Rs. 700 crore was given as Programme Grant or development subsidy that is released in quarterly instalments of Rs. 35 crore.
In addition to the commitment of Rs. 3400 crores as assistance, GoI also funded two major capacity building projects of Bhutan in the ICT (Rs 205 crore Chiphen Rigphel/ Total Solutions Project and health sectors (establishment of Bhutan Institute of Medical Sciences).
The overarching mechanism for discussing India’s bilateral assistance to RGoB (PTA, Programme Grant, SDP) is the Annual Plan Talks or India-Bhutan Development Cooperation Talks. Separately, to monitor implementation and fast track the progress of developmental projects particularly projects funded under the PTA, there is a Project Monitoring Committee (PMC) which meets regularly. The Small Development Program Committee (SDPC) comprising representatives of both governments decides the projects to be under this scheme.
During 10th FYP of RGoB, Government of India also provided financial support of Rs. 25 crores for setting up of Bhutan Institute of Medical Sciences.
India’s assistance to the Eleventh Five –Year Plan (2013-2018) of RGoB
During the visit of the Prime Minister of Bhutan, Lyonchhen Tshering Tobgay to India from August 30 to September 4, 2013, Government of India's Assistance Package for Bhutan's 11th Five Year Plan (July 2013 to June2018), was decided . At Bhutan's request, India agreed to contribute Rs 4500 Crores. For the current Five Year Plan of Bhutan, out of the total committed external assistance of Nu/Rs 6600 cr.; India’s contribution of Rs. 4500 cr., represents about 68% of the total external assistance and 49% of the capital expenditure of RGOB’s Nu 9200 cr.
Additionally, GOI agreed to provide Rs. 500 Crore as Economic Stimulus Package, to boost the Bhutanese economy and help RGOB overcome the problems arising out of the acute INR shortage.
Out of the Rs. 4500 crore, Rs. 2800 Cr., will be provided as Project Tied Assistance (PTA) for funding 86 mutually agreed projects covering major priority sectors of socio-economic development like roads and bridges; education (schools); education (tertiary); health and construction of regional hospitals; engineering services; industries; energy; security; agriculture; livestock; judiciary; civil aviation; roads and urban transport; sports; culture; ICT & e-governance; scholarships and trainings, HRD etc.
Rs. 850 Cr will be allocated for funding Small Development Projects (SDP). These projects are short gestation and community-oriented, focusing mainly on drinking water schemes, schools in rural areas, irrigation canals, farm roads, gewog connectivity roads, RNR centres, basic health units and staff quarters, market sheds, community meeting halls and other basic infrastructure in rural areas. Such projects are becoming increasingly popular with village communities actually identifying them, on the basis of their needs and requirements. Having a direct bearing on the lives of the grassroots people, these projects have become an effective tool for addressing rural poverty.
The remaining Rs. 850 Cr is provided as Programme Grant (Development Subsidy) to the RGOB. Programme Grant is released in quarterly installments of Rs. 42.5 cr.
There are several institutionalized mechanisms to decide on the projects, and monitor their implementation and progress. The Annual Plan Talks or India-Bhutan Development Cooperation Talks is the overarching mechanism for discussing India's bilateral assistance to RGOB, including PTA, Programme Grant, SDP, Excise Duty Refund, ESP etc. Separately, to monitor implementation and fast track progress of PTA projects, there is a Project Monitoring Committee (PMC). In addition to this, in September 2014, during the 3rd Plan Talks, the two sides decided to form a Sub-Committee to the PMC to closely monitoring the implementation of PTA projects. The sub-committee which is to meet every two months, held its first meeting on 18th November.
Similarly, for deciding the Small Development Projects, which are undertaken in batches, there is a Small Development Project Committee (SDPC), which meets every 6 to 8 months. Under the 11th Plan, two batches of projects numbering 303, have been agreed upon for implementation. To monitor the progress of these projects, the last SDPC meeting decided to set up a sub-committee that will meet every two months. The first meeting is scheduled to be held in January 2015.
Subsidies and Excise Duty Refund
GoI also provides Kerosene/LPG subsidy and Excise duty refund to RGoB on an annual basis.
Standby credit facility
In order to assist Bhutan to overcome the rupee liquidity crunch, GoI extended a standby credit facility of Rs 1000 crores to RGoB. Under this facility, valid for 5 years, GoI provides credit to RGoB at a concessional interest rate of 5% per annum.
Currency Swap Agreement
On 7th March, 2013, the Royal Monetary Authority (RMA) of Bhutan and the Reserve Bank of India signed the Currency Swap Agreement (CSA) of Rs. 5.4bn. The currency swap facility allows the RMA, the central bank of Bhutan to withdraw INR 5.4 bn from RBI for six months at a fixed interest rate of 6.5 percent. This will help in easing the INR liquidity shortage in the country.
DTAA with Bhutan
Double Taxation Avoidance Agreement (DTAA) was signed between both the Governments in March 2013. The internal procedures for its implementation has been completed and the Agreement came into force w.e.f. 17th July 2014.