The India-Bhutan Trade and Transit Agreement 1972 established a free-trade regime between the two countries. The Agreement also provides for duty-free transit of Bhutanese exports to third countries. In 2015, bilateral trade reached Rs/Nu. 8,550 cr. Imports from India were Rs/Nu. 5,374cr accounting for 79% of Bhutan’s total imports. Bhutan’s exports to India stood at Rs/Nu. 3,180 cr (including electricity) and constituted 90% of its total exports. In accordance with the bilateral trade agreement, GoI refunds excise duty on Bhutanese imports from India and this refund has increased from Rs 194cr for 2014 to Rs 291cr for 2015, partly on account of huge increase in motor vehicle imports.
Exports to Bhutan (Imports from India) (Rs. Cr)
Exports to Bhutan from India as a % to total Bhutanese import
Imports from Bhutan(Exports to India) (Rs. Cr)
Imports from Bhutan to India as a % to total Bhutanese export
One-third of Bhutan’s exports to India is electricity. Other items of export include minerals such as ferro-silica (the Bhutanese have been complaining that these exports have been declining), cement and dolomite. Recently, there has been growing exports of cardamom and Bhutan is also keen to sell off-season vegetables in neighbouring Indian markets. The Government if planning to build a mini dry port in the border town of Phuentsholing to promote exports, that are plagued by logistical difficulties due to the difficult terrain and poor connectivity. Bhutan sources the majority of its import requirements from India.
Bilateral trade is conducted in Indian Rupees which is fully convertible to Ngultrum at par. Though Bhutan has an adverse balance of trade with India, the balance of payment position with India ended last year with a surplus. Some years back, a Rupee shortage had led to severe compression of imports. However, the medium term outlook is good as hydel capacity is expected to increase from 1600 MW currently to nearly 5000 MW within the next five years. More than 90% of the power generated will be exported to India.