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Submitted for the project undertaken in partial fulfillment of B.A. LL.B. (Hons.)I Sem.
5 year integrated course at RMLNLU, Lucknow.


B.A.LL.B. (Hons.) II SEM.
R. NO. 24

I would like to extend my sincere thanks to
My teacher and my mentor Dr. Monika Shrivastava for giving me this wonderful
opportunity to work on this project and for her able guidance and advice,
Vice Chancellor, Mr. Gurdeep Singh Sir and Dean (Academics), Professor C.M.
Jariwala for their encouragement and Enthusiasm;
My seniors for sharing their valuable tips;
And my classmates for their constant support.


Historical Background....................................................................................4
India Bhutan friendship treaty 2007...............................................................5
Indo Bhutan trade...........................................................................................6
Bhutan’s stride for democracy.......................................................................7
Recent issues..................................................................................................9
Chinese influence..........................................................................................12


The bilateral relationship between the Kingdom of Bhutan and the Republic of India is a truly
exceptional example of how mutually beneficial cooperation is possible between two countries
that dispose of starkly different power resources. On the one hand there is India, the world‘s
largest democracy, second most populous nation, fourth most powerful military and fifth largest
economy, on the other hand there is Bhutan, one of the world‘s youngest and smallest
democracies, a Least Developed Country (according to the United Nations), the world‘s 167th
largest economy and a negligible military power.1
Relations between India and Bhutan have been warm. Bhutan is easily India's closest friend in
the neighborhood. India is Bhutan's largest donor, accounting for almost 80% of its foreign
assistance, and its largest trade partner. It has contributed generously to infrastructural
development in Bhutan. Besides, India provides military training to the Bhutanese forces and
maintains a permanent military training presence in Bhutan. Bhutan receives almost half of
India’s total foreign aid. This year New Delhi has committed Rs. 3600 crores to Thimpu.2
From the very beginning, India helped Bhutan to develop its economy, infrastructure, health and
education system as it almost entirely financed the first five-year-plans. Today, relations between
India and Bhutan have expanded far beyond their traditional fields of cooperation and are more
diverse than ever. Frequent visits and exchanges of top officials from both sides ensure a
constant flow of information and deepen trust and understanding for each other‘s problems,
challenges and sensitivities.
India‘s neutral and at times even pro Bhutan stance on the refugee issue, probably one of the
most sensitive issues for the Himalayan kingdom, has enabled Bhutan to follow and develop its
very own and unique vision of political change, economic growth and cultural preservation.

1 Figures available at:, (last accessed on 20 October 2013)
2 (last accessed on 20 October 2013)

Although traditional trade and cultural links between India and Bhutan existed for centuries, the
beginning of formalized diplomatic relations between Bhutan and British India can be traced
back to the treaty of Sinchula of 1865, followed by the 1910 treaty of Phunakha, in which
relations were further formalized and Bhutan agreed to be guided in its foreign policy by the
government of British India. The government of Bhutan was initially apprehensive about having
ties with independent India. It took two years of negotiations before a new treaty was in place.
On August 8, 1949 Bhutan and India signed the Treaty of Friendship, calling for peace between
the two nations and non-interference in each other's internal affairs. However, Bhutan agreed to
let India "guide" its foreign policy and both nations would consult each other closely on foreign
and defence affairs. The treaty also established free trade and extradition protocols.
Although New Delhi formally held a prerogative over Bhutan‘s foreign policy, the government
in Thimphu began to diversify its foreign relations beginning in the mid-1960s. It joined the
Colombo Plan in 1963 and became a full member of the United Nations in 1971. Diplomatic
relations in the form of resident representatives between India and Bhutan were established in
1968 and later upgraded to full ambassadorial relations in 1978. Bhutan was also among the first
nations to acknowledge the independent state of Bangladesh.3


3 Gallenkamp, Marian (2012), ‘Indo-Bhutan Relations as a Model for Cooperation between Small States and Big
Powers’, in FPRC Journal, No. 9, Focus: India and South Asia, Foreign Policy Research Centre, New Delhi, 251256.

The historic India-Bhutan Friendship Treaty of 2007, signed on 8 February in New Delhi,
updated the treaty of 1949 and ushered in a new era of friendship and economic cooperation,
when India took a step towards eliminating the irritant in the relations between the two nations
by agreeing to revise the treaty of 1949, whose article 2 and article 6 according to Bhutan seem
to circumscribe its sovereignty and signing a new treaty of friendship. Article 2 requires Bhutan
"to be guided by the advice of India" in the conduct of its external relations, and Article 6 allows
Bhutan to import "arms, ammunition, machines, warlike material or stores" for its "strength and
welfare" but with India's "assistance and approval". The new treaty replaced the provision
requiring Bhutan to take India's guidance on foreign policy with broader sovereignty and not
require Bhutan to obtain India's permission over arms imports. This could also remove the sting
from criticism of India’s “hegemonistic ambitions” in the region. 4 Although Bhutan had been
quietly raising these objections about these provisions restricting its sovereignty, what prompted
India to do so was the fact that Bhutan was democratizing, and India needs to acknowledge its
full sovereignty formally.
This treaty reflects the contemporary nature of India's relationship with Bhutan and aims at
strengthening the ties in a manner that is responsive to and serves each other's national interests
through close cooperation. It will enable the further intensification of cooperation in hydropower,
trade, and commerce and human-resource development. It will surely exemplify and elevate the
trust and maturity of the relationship between the two countries.

4 (accessed on 16 October 2013)

India is not only Bhutan's main development partner but also its leading trade partner. A free
trade regime exists between India and Bhutan. The India-Bhutan Trade and Commerce
Agreement which expired in March 2005, has been renewed for a period of 10 years. Currently,
the major items of exports from Bhutan to India are electricity (from Tala, Chukha and Kurichhu
Hydroelectric Project), base metals and articles, minerals, vegetable fat and oils, alcoholic
beverages, chemicals, cement, timber and wood products, cardamom, fruit products, potatoes,
oranges and apples, raw silk, plastic and rubber products. Major exports from India to Bhutan are
petroleum products, mineral products, base metals and articles, machinery, automobiles &
spares, vegetable, nuts, spices, processed food and animal products, chemicals, wood, plastic and
The Agreement on Trade and Commerce also provides for duty free transit of Bhutanese
merchandise for trade with third countries. Sixteen exit/entry points that India identified in the
Protocol for Bhutan's third country trade are the designated seaports of Kolkata, Haldia, Mumbai
and Chennai, Dhubri, the riverine route, air route of New Delhi, Chennai, Mumbai and Kolkata,
Raxaul’s rail route, Jaigaon, Chamurchi, Ulta Pani, Hathisar (Gelephu), Darranga, Panitanki,
Changrabandh, Phulbari, Dawki, the designated road routes.
During 2010, imports from India were of the order of Rs. 2930 crores and constituted 75% of
Bhutan’s total imports. Bhutan’s exports to India in 2010 amounted to Rs. 2600 crores and
constituted 90% of its total exports. Total trade in 2010 grew by about 26% from 2009.5

5 (last accessed on 20 October

The year 1998 was only the starting point of radical changes in the political landscape of the
Kingdom. Having pursued the modernization and development of Bhutan in the same
committed, passionate, and careful spirit as his predecessors for over two decades, the King kickstarted a revolutionary process of democratic transition.
In March 2005, after three years of work, the first draft of the new constitution was officially
presented. Members of the Royal Family and the King himself extensively toured the country,
presented the constitution to the people6, and discussed their concerns. This enabled the people’s
suggestions and concerns to be taken into consideration during the final drafting. In December
the same year, the King announced that the first democratic elections at the national level would
be held in 2008 and in 2006, the Electoral Commission of Bhutan was inaugurated and it started
to prepare for the general elections.7 On 14 December 2006, King Jigme Singye Wangchuk, the
fourth Druk Gyalpo, surprisingly announced his immediate abdication. “It was the first time in
world history that a monarch, who was initially vested with absolute powers, voluntarily reduced
the scope of these powers and eventually abdicated with no other reason than his own dedication
to political reforms.”8
In June 2007, the ban on political parties was lifted to allow for their formation in the face of the
upcoming elections. No parties on the basis of race, religion or ethnicity were allowed to contest.
The elections resulted in a majority for the Druk Phuensum Tshogpa or DPT Party which, with
45 out of 47 seats in the national assembly, garnered 67 per cent of the votes in an essentially
two-party contest against People’s Democratic Party.
The government has steadily increased its foreign network base and Bhutan now has diplomatic
relations with 52 countries and the European Union (up from 21 in 2008). It has diplomatic
missions in India, Bangladesh, Thailand, Kuwait, and the UN in Geneva and New York. Bhutan
6 (last
accessed on 22 October 2013)
7 Gallenkamp, Marian , “Democracy in Bhutan: An Analysis of Constitutional Change in a Buddhist Monarchy”,
,IPCS Research Paper No.24, Institute of Peace and Conflict Studies, New Delhi, 2011

8 (last accessed on 10 October 2013)

is a candidate for a non-permanent seat in the UN Security Council in 2013 and India is not only
supporting the Bhutanese candidature, but lobbying for it.9
Bhutan achieved an important milestone this year in July — its second multi-party election.
India’s relations with Bhutan came under the scanner ever since accusations were hurled at India
for attempting to influence the outcome of Bhutan’s general elections which were held in July
2013 in which the People’s Democratic Party (PDP) unexpectedly defeated the ruling party Druk
Phuensum Tshogpa (DPT) by winning 32 out of 47 seats in the Assembly with 55 per cent of the
India was accused of unfairly influencing the results of the elections as when the election
campaign was at its peak, New Delhi withdrew subsidies on kerosene and cooking gas supplied
to Bhutan, which resulted in a steep price hike for essential products and led to a consequent rise
in fuel prices. The lack of subsidies also led to a credit crunch which led to import restrictions
after the country ran short of foreign exchange reserves of the Indian rupee. Additionally, New
Delhi, which has been one of the instrumental players in funding and implementing Bhutan’s
Five Year Plans, left talks on Bhutan’s current Five Year Plan in limbo.
India had provided Bhutan with nearly 2,000 EVMs and India's Chief Election Commissioner
V.S. Sampath was invited to oversee the election process. On 30 September, 2013 Indian
President Pranab Mukherjee said, “India looks forward to continuing close cooperation on issues
of national interest, including mutual security matters with Bhutan”, as its visiting Prime
Minister Lyonchhen Tshering Tobgay called on him in New Delhi.

9 (last accessed on 26 October 2013)

Bhutan on the other hand was able to return that favor when it launched Operation All Clear in
December 2003, flushing out Indian militants from its southern borderlands. The surprising
success of that first ever test for the small but efficient Bhutanese military has shown that
defense cooperation between India and Bhutan has produced beneficial synergies for both
countries, securing a porous border from Indian militants that seek safe haven in the vast forests
of southern Bhutan to launch attacks on India and, on the other hand, from radical elements and
terrorists in the camps in Nepal that seek to carry out attacks against Bhutan. 10 To sustain the
success of the 2003 operation, both countries meet regularly to discuss border management and
security, the last time being the 7th meeting in September 2011.
Even recently, there have been reports about the increased activity of insurgent groups across the
India-Bhutan border. While Bhutanese officials claim that zero-tolerance and hot pursuit is
exercised when it comes to the question of insurgents influxing into Bhutan, it has been reported
by various media sources that the Paresh Barua faction of the United Liberation Front of Asom is
relocating bases to Bhutan. While such activities have been raising alarm bells in Bhutan, the
import of these issues for discussion is highlighted by the King’s itinerary, which included a
meeting with India’s National Security Advisor and Home Minister in January 2013.
On 1 July 2013, India withdrew all subsidies on cooking gas and kerosene being provided to
Bhutan - arguably India's only unquestioned friend among its neighbours - creating a huge crisis
in the tiny, landlocked kingdom and bringing the bilateral ties under strain. This step was taken
after Bhutan’s 10th Plan expired on 30th June 2013.
10 Gallenkamp, Marian ,“Between China, India and the Refugees: Understanding Bhutan‘s National
Security Scenario”, Institute of Peace and Conflict Studies, New Delhi, 2010.

Gas and kerosene prices more than doubled in Bhutan after this move, and the poor people are
the worst hit victims of this and it caused much heartburn because this step was taken at a time
when it was in the middle of its second Parliamentary democratic elections in Bhutan in 2013.
Many said that the subsidy cut has come against the backdrop of New Delhi smarting since last
year when Bhutan PM Jigme Thinley appeared to be cozying up to Beijing. He had a meeting
with the Chinese premier in Rio and also imported some 20 buses from China. In fact, it was
being viewed as a shift in Thimpu's foreign policy due to which India was taken by a surprise.
However it could not be ascertained that the subsidy cut was due to this reason. Also there was
speculation that the subsidy cut was a considered step or some bureaucrat's ill-advised
enthusiasm. However the Indian officials said that since the Bhutan 10th Plan expired on June
30, the fresh terms of financial assistance, including subsidies, would have to be negotiated with
the new government. New Delhi was also miffed at the cost escalation of power projects in
Bhutan which it is financing. In some cases, the cost had almost doubled, raising suspicions of
some fund diversion. This badly affected the relations between the two nations. Infact,
Former Indian ambassador Pavan K. Verma Thursday criticized as "ill-timed and unwise" the
Indian decision to withdraw subsidy to the cooking gas.
However, on 11 July 2013, India said that it has assured Bhutan that it will discuss the issue of
fuel subsidy with the new government in Thimphu and does not want to create any hardship for
the people of the Himalayan kingdom. After the elections, Bhutan's incoming PM Tshering
Tobgay on July 17 thanked Prime Minister Manmohan Singh for his assurance of "steadfast and
unflinching" support from India, and asserted his "unwavering resolve and commitment to
preserve and strengthen the special ties" with India and two days later, India decided to restore
the subsidy on cooking gas and kerosene for the tiny Himalayan kingdom at a meeting chaired
by foreign secretary Ranjan Mathai on Friday, petroleum ministry officials were instructed to
reinstate the subsidy on both fuels from next month. The Ministry of External Affairs (MEA)
picked up the annual tab of Rs 50 crores from its budget for the same and restored the subsidies
granted to Bhutan.

Since 80 per cent of Bhutan’s total trade is with India, the resulting macroeconomic environment
makes it largely dependent on its southern neighbour. Hydro-power perpetuates this economic
dependence as it constitutes 45 per cent of Bhutan’s total exports to India.
In 1967, Bhutan started importing electricity through the Jaldhaka hydropower plant, located in
West Bengal, India. The turning point in power cooperation came with the commissioning of the
336 MW Chukha Hydel project in 1989, which was a significant test case in many ways and set
the pace for future cooperation. With 75 per cent of the total generation capacity from Chukha
being exported to India, Bhutan realised the potential of hydro-power projects as a means to earn
more revenues. The first phase was significant as it witnessed the successful commissioning of
three hydel plants (Chukha, Kurichhu and Tala) between 1987 and 2007. In all the three projects,
India has provided total investment on turnkey basis i.e. 60 per cent as grant and 40 per cent as
loan. Bhutan on its part provided free land, timber and firewood for the projects and waived
taxes on construction material. Since 2003, there has been a spike of revenues generated from
export of power; from Nu 2.3 billion to Nu 10 billion in 2009, thereby substantively increasing
revenues from Indian assisted projects.11
Given the benefits from bilateral cooperation in the power sector, India and Bhutan signed a
Memorandum of Understanding in December 2009, whereby India committed to buy 10,000
MW from Bhutan by the year 2020 for phase II to hydro power projects.
The transition to the phase II is reflected by the change in investment partnerships, as the
upcoming projects will be planned on a 70 per cent loan and 30 per cent grant basis (except for
Punatsangchu hydel project which is 60 per cent loan and 40 per cent grant). Further, the nature
of projects will change, as mega projects with reservoirs will be constructed. This will entail
huge financial costs, amounting to a notional Rs. 500 billion which is indicative of Indian
concerns about the sustainability of power projects.

11 (last accessed on 20 October 2013)

Bhutan is a small country located between the two giant countries of the world, namely India and
China. India confronts a new strategic situation in its neighborhood as its staunchest ally Bhutan
prepares to establish full diplomatic ties with China. Until now, Bhutan had been the only South
Asian country where China did not have a presence. That is about to change. 12 While Bhutan has
not made official comments on establishing diplomatic relations with China, the Indian,
Bhutanese and Chinese media have been quite vocal on this front. There is no denying the fact
that as the process of Democratisation takes roots in Bhutan, certain sections will be demanding
establishment of bilateral relations with China. Infact, internal pressures have already been
fomenting in Bhutan on establishing ‘limited economic ties’ with China. It is argued by certain
sections that goods imported from the Calcutta port in India increase transactional costs and that
these ‘costs’ could well be reduced, if goods were imported from Bhutan’s North-Western border
via Tibet. However, any decision on this front would require tampering with the much protracted
Sino-Bhutan boundary dispute.13
There are several contentious issues involved from Indian perspective if diplomatic relations are
established between Bhutan and China, and the most important being the Border security issue.
Bhutan is vital to India’s security calculus not only vis-a-vis China, but also in tackling some of
the north-east insurgent groups like its crackdown on the ULFA groups in 2004. Bhutan’s
position in the Chumbi Valley, the tri-junction with India and China, makes its border resolution
decisions key from a security point of view for India. China and Bhutan have border dispute
12 (last accessed on 20 October 2013)
%20Bhutan%20by%20Dil%20Bahadur%20Rahut%20&%20Medha%20Bisht.htm (last accessed on 20
October 2013)

which can be dated back from 1950’s and diplomatic relations can be established between these
two nations if this dispute is settled. Like in previous negotiations with other countries, China
prefers the package deal solution, settling the complete border at once instead of agreeing to
sector wise understandings. The Chinese government proposed to concede to Bhutanese claims
in the central northern sector, comprising a total of 495 sq. km in, in exchange for 269 sq. km of
disputed territory in the western sector, comprising key ridges in tri-junction area which Bhutan
was unwilling to give as they were controlled by the Indian Government. The unfolding border
talks between Bhutan and China are a cause of concern for India as this can lead to a formidable
impact on security calculations for India with regard to connectivity with its northeast region. It
is likely that primary objective behind this move of China is to gain diplomatic and strategic
advantage over India.
While the merits and demerits of Bhutan’s relationship with China and its influence on India and
Indo-Bhutan ties are being discussed, it is worth mentioning that India must acknowledge
Sovereignty of Bhutan and cannot pressurize Bhutan in concern with its relation with China, also
it is in best interest of Bhutan to establish essential minimum formal diplomatic relations with
China as it has been building up pressure to settle the border disputes but make sure not to come
under its influence Considering China’s attempts to strengthen its influence abroad by using aid
and investment as policy tools in other developing countries, it is safe to assume that it would
also try to do so in Bhutan. Even if that would boost economic development, Chinese presence in
Bhutan might ultimately chip away at its unique cultural heritage and its overall policy goal of
Gross National Happiness, which is precisely not about blindly following economic development
motive, but anchoring sustainable development within society and ensuring the people’s welfare
in more than just economic terms as the Chinese policies are just opposite to this. Infact it is
feared by conservatives that it can give rise to a Tibet like situation. However the prime concern
should be to maintain and strengthen its relationship with India as it is essentially Bhutan’s most
important ally and friend, given that India accounts for a total of 79 % of Bhutanese imports and
95% of its exports. Simply put, Bhutan could probably not exist, let alone function, without India
on its side.14

14 Marian Gallenkamp, “Between China, India and Refugees: Understanding Bhutan’s National Security
Scenario”, IPCS Issue Brief, working paper no. 154, 2010.

One can safely assume that bilateral relations between India and Bhutan are destined to remain as
intense, respectful and cordial in the coming years, as they have been for the past decades. The
potential for even closer cooperation is great. The King of Bhutan Jigme Khesar Namgyel

Wangchuk has been quoted in the Indian media as saying that “My Grandfather told me that the
destiny of Bhutan is intimately bound with that of India and it is in our mutual interests to further
the bonds of friendship and understanding.” The ‘destiny’ referred to by the King points to the
geographical location of Bhutan, which underlines the geo-political significance of India as
Bhutan’s facilitator to South and South-East Asia. . Although Bhutan still is and will remain
dependent on India to an overwhelming extend, this huge dependency has not let India to simply take
and command from Bhutan what it wants, but to a relationship that is marked by respect and an
esteem for mutually beneficial cooperation.
It can be remarked that Bhutan is an important country in India’s neighbourhood. Given its

strategic significance, the country should not be taken for granted by India. India needs to
respond sensitively to its Himalayan neighbour, a move which will help create further goodwill
in the long term. Indian Prime minister Manmohan Singh found the perfect words to express this
relationship, when he addressed the joint sitting of the first democratically elected parliament of
Bhutan in 2008, “As Bhutan enters a new era in its history, you can continue to count on India, as a
friend and – may I say – an admirer of Bhutan. India will stand by you as a factor of stability and
support in your quest for greater prosperity and happiness”. 15

15 (last accessed on 20 October 2013)

1. Mitra, Debamitra, “Indo-Bhutan Relations: Political Process, Conflict and
Crisis”,Academic Excellence, Delhi, I edn., 2010
1. Gallenkamp,Marian, Between China, India and Refugees: Understanding Bhutan’s National
Security Scenario, IPCS Issue Brief, working paper no. 154, 2010.
2. Gallenkamp,Marian, The History of Institutional Change in The Kingdom of Bhutan: A Tale
of Vision, Resolve, And Power, Heidelberg Papers in South Asian and Comparative Politics,
working paper no. 61, April 2011.
3. Gallenkamp,Marian, Indo-Bhutan Relations as a Model for Cooperation between Small
States and Big Powers’, FPRC Journal, vol. no. 9, Focus: India and South Asia, Foreign
Policy Research Centre, New Delhi, 2012.
4. Gallenkamp,Marian, Democracy in Bhutan: An Analysis of Constitutional Change in a
Buddhist Monarchy, Institute of Peace and Conflict Studies, Research Paper No.24, 2010.
5. Turner, Mark, Sonam Chuki, Jit Tshering, Democratization by Decree: The Case of Bhutan’,
Democratization, vol. 1, issue no. 18, 2011.

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