PROJECT SUBMISSION

MACROECONOMICS 1

AN EVALUATION OF THE MACROECONOMIC INDICATORS IN

INDIA AND BHUTAN FROM 2015 TO 2019

GUIDE NAME: MS PRANITA PATHAK

SUBMITTED BY :
KOMAL PHUTANE (MAECO2033)
SALONI SOM (MAECO2037)

GOKHALE INSTITUTE OF POLITICS AND ECONOMICS

 OBJECTIVE

The objective of this study is to provide a contemporary analysis of the two

developing countries, India and Bhutan. The data and analysis interpreted in
this report will enable readers to track the progress of both the countries with
respect to the indicators which are evaluated in a comparative framework.
This shall provide the trend analysis of the countries. The study lays focus on
these countries during a period of 2015 to 2019.

Gokhale Institute of Politics and Economics, Pune

 INTRODUCTION

Bhutan’s economy is based on hydro-power, forestry and agriculture which

provide livelihood for the majority of the population. The Indian economy
encompasses village farming, traditional agriculture as well as modern
industries and services.

Though Bhutan is physically small with a limited scope, it has proved itself to
be one of the most peaceful economies which is free of threats from terrorism,
militancy etc. Indeed, Bhutanese students enroll almost 4 000 Bhutanese
students at Indian Universities at all times; many of them still have Indian
government bursaries.

This study will explore the trend wise comparative analysis of both the
countries taking macroeconomic parameters such as GNI per capita, GDP,
trade, inflation, Human Development Index, Gender Parity Index, Consumer
Price Index, forest area, population growth etc, into consideration.

The bilateral relations between India and Bhutan were formed when the Indo-
Bhutan Treaty was signed. India with a GDP of $2.7 T, was the 7th largest
economy while Bhutan was the 172th with a GDP of $2.4 B. The purchasing
power parity conversion factor was noted to be 21.81 for Bhutan and 18.1 for
India and the GNI per capita was noted to be $3 k for Bhutan and $2 k for
India respectively. In India, the literacy rate was noted to be 74.4% as of 2018
whereas in Bhutan, it is 66.6% marked in 2017. In India, 8.5% of adults are
unemployed in 2017, the number is 3.25% for Bhutan. Bhutan accounts for 40%
of all its revenues and 25% of its Gross Domestic Product, from its energy
export to India. Planned attempts to establish Bhutan started at the beginning
of the 1960s. In 1961 Bhutan's First Five Year Plan began. India has also
extended funding to the Bhutan's Five Year Plan. India remains the main
donor to Bhutan's socio-economic growth. The two countries exchange a
vibrant cultural heritage. Bilateral relations between India and Bhutan are
marked by frequent high-level political exchanges, which help to reinforce
bilateral ties. If we look at the past 20 years, Bhutan has been a recipient of aid
not only from India but also for other countries. This eventually helped
Bhutan in achieving its economic goals as the country managed to be called a
developing from a least developed one.

Gokhale Institute of Politics and Economics, Pune

 LITERATURE REVIEW

India and Bhutan share an almost five decade old golden bond. This has led to
not only changes in Government of India, but also in layering out the larger
geopolitical or social circumstances. These countries share a long standing
cordial relationship, which has its roots in goodwill and mutual understanding.
This was further accompanied by a tag known as, ‘Treaty of Friendship’ signed
between both countries in 1949, which was updated in 2007. The original
treaty stated that Bhutan was to be guided by India in its foreign policy.
According to amendment none of the countries will let anyone to use their
territories for any activity.

The year 2018 marks 50 years of friendship between the two countries. The
initiation of this bond is credited to the efforts of Indian Prime Minister
Jawahar Lal Nehru and his Majesty Jigme Dorji Wangchuck, who is known as
the third king of Bhutan.

Bhutan is aligned with India via trade, and links related to the monetary sector.
It signed a memorandum with India and Bangladesh in July 2017. It was agreed
upon, to construct a hydro-power plant in order to export electricity to
Bangladesh. The cooperation in hydro-power projects is one of the most
highlighted examples of a win-win situation between the two. Bhutan was
always pivotal in India’s major foreign policies, Neighbourhood First Policy
and Act East Policy,

Gokhale Institute of Politics and Economics, Pune

 LITERATURE REVIEW

The total trade increased by about fifty times during 2000-2019. The bulk of
Bhutan’s trade is engaged with India. Though Bhutan’s share in India’s total
exports to the world has been fluctuating. Nevertheless, India stands as
Bhutan’s largest trading partner and the most prominent source of its imports.
Cross border trade of electricity between India and Bhutan is taking place
under the Bilateral Power Trade Agreement, which was signed between both
the countries in 2006.

India stands as Bhutan’s leading development partner. As the First Five Year
Plan of Bhutan was launched in 1961, India was present to financially support
Bhutan’s FYPs and allotted Rs 4500 crore to Bhutan’s 12th FYP. While India
and Bhutan share a remarkable bond, issues such as the state of relations with
China prove to be a matter of concern for both countries.

The year 2014 marks PM Narendra Modi, who led BJP Government being into
power put major emphasis was on India’s neighbourhood and its relations with
Bhutan, which have been tension free since then. It has been observed that
over the last 40 years, the interactions of Bhutan have significantly increased at
bilateral and multilateral levels. We observe the phase of Bhutan’s transition to
democracy. From 1998 onwards, India performed as a steadfast support
system for Bhutan in various ways to achieve economic stability.

Currently, India stands as Bhutan’s major partner in achieving its aim of

development goals. It should be noted that India has also benefited from this
relationship with Bhutan. India was able to satisfy its growing demand for
electricity, somehow through the energy imports from none other than
Bhutan. Ever since the two countries marked this special bond, it proved that it
is possible to pursue a journey filled with mutual benefit and peace, even if the
atmosphere is marked with terrorism, conflict and economic disparity.

Gokhale Institute of Politics and Economics, Pune

 RESEARCH
METHODOLOGY

The study intended to draw an overall macroeconomic comparison between

the countries of Bhutan and India. The indicators namely economic indicators,
social indicators, environmental indicators, global indicators, and population
indicators were chosen in order to compare these countries. The time period
of analysis was from 2015 to 2019. The study was a secondary database survey
study and the information was procured from the World Bank website. The
sources of information used from the World bank data have been provided
links to, in the references section.

Gokhale Institute of Politics and Economics, Pune

 ANALYSIS

The intent is to analyse the various macroeconomic indicators that can be

utilised to map the progress of India and Bhutan from 2015-2019.

The various indicators used for the analysis are as follows:

1. Economic indicators
2. Social indicators
3. Environmental indicators
4. Global indicators
5. Population indicators

Gokhale Institute of Politics and Economics, Pune

 ECONOMIC
INDICATORS

India and Bhutan experience a positive Gross National Income per capita for
the years 2015 to 2019. India experiences an approximate 28% increase in the
GNI per capita starting from $5400 to $ 6290 for the time period. Bhutan has a
27% increase starting from $8820 to $11230. Bhutan's GNI per capita is higher
by $4940 in 2019, than in India. Overall, Bhutan fairs better than India as it
starts off with the higher GNI value in 2015, although it it has a similar rate of
growth.

India experiences a steady decrease in the GDP growth over the years from
2015 to 2019. The highest amount of GDP growth was experienced in 2016
which was 8.3 %, and the lowest amount of GDP growth was experienced in
2019 which was 4.2 %. The difference between the GDP growth of these two
years has been 4.1 %. The GDP of Bhutan has followed of fluctuating pathway.
The highest GDP growth rate in Bhutan was in the year 2016 which was 8.1 %
and the lowest was in the year 2018 which was 3.1 %. This makes a difference of
exactly 5% in the the growth of GDP in the country over these five years. The
average GDP growth rate of India has been 6.7% Whereas the average GDP
growth rate in Bhutan has been 5.6%.

Gokhale Institute of Politics and Economics, Pune

 ECONOMIC
INDICATORS

The inflation in India has experienced a study increase from 2015 to 2018 and
experienced a sudden fall in the inflation in 2019. There was a steady increase
in the inflation rate in Bhutan from 2015 to 2017, after which there was a steep
reduction in the inflation in the year 2018. The inflation rate reduced even
more in 2019. While India reached the peak of its inflation rate in 2018,
Bhutan simultaneously experienced its steepest fall in the inflation rate in the
same year. The average inflation rate in India is 3.4 % while it is 3.18% in
Bhutan.

India and Bhutan are running in negative net profits implying that the exports
are lesser than the imports for both the countries. The net profits in India
reduced from 2015-2018 and experienced a hike in 2019. The net profits in
Bhutan have been steadily increasing during the five-year period. The
reduction of the net profits in India have been on an average 2.74%. While the
net profits reduced by 24.74% in Bhutan, the reduction in net profits in India is
extremely low when compared to that of Bhutan.

Gokhale Institute of Politics and Economics, Pune

 SOCIAL
INDICATORS

There is a steady increase in the consumer price index for the countries of
India and Bhutan in the time period of 2015 to 2019. While the average value
of the CPI is 162.5 in India, it is 157.1 in Bhutan. The dispersion of the CPI
values for the time period for both the countries is significantly close to that of
the previous year.

The percentage of unemployed people comprising of the total labour force

have been a very study number in both the countries for the time period
considered. The percentage of unemployed people are lower in Bhutan than
India. On an average, 5.42% of the total labour force comprises of unemployed
people in India while It is 2.36% in Bhutan.

Gokhale Institute of Politics and Economics, Pune

 SOCIAL
INDICATORS

The final consumption expenditure in terms of USD has been compared for
both the countries in the given time period. There is a steady increase on the
consumption expenditure for India and Bhutan.
The average final consumption expenditure for India has been
1,778,742,524,398.26 while Bhutan experiences it at 1,733,004,855.75.

The human development index of India and Bhutan have been very similar
during the given time period. The HDI in 2015 for India was 0.624 while it was
0.628 in Bhutan. The HDI for India and Bhutan in 2019 was 0.645 and 0.654
respectively. The increase in the HDI value has been very slow for both the
countries. While Bhutan experienced an increase in the HDI value, the HDI for
India reduced in 2016 and increased throughout the remnant years. The
average HDI value for India is 0.636 while it is 0.643 for Bhutan.

Gokhale Institute of Politics and Economics, Pune

 GLOBAL
INDICATORS

There was a steady trend in the FDI in in India where the FDI value was
approximately 44 million dollars in 2015 which grew to 50 million dollars in
2019. While the FDI investment experiencea a fluctuation for Bhutan during
the time period, a significant reduction in the the FDI investment value was
experienced in the year 2017. This was the only negative FDI investment value
during the period.

Gokhale Institute of Politics and Economics, Pune

 ENVIRONMENTAL
INDICATORS

The absolute amount of forest area in India is higher than the forest area in
Bhutan. This is so due to the large territorial expansion of India when
compared to that of Bhutan. The average forest area in India for the period is
712,276 while it is 27,181.5 in Bhutan. As of 2019, the total forest cover in India
is 712,249 Sq km (71.22 million hectares), which is 21.67% of the total
geographical area. The forest area in terms of percentage of the total land area
of Bhutan was 72.48% as of 2016.

The carbon dioxide damage is significantly higher in India as compared to

Bhutan. The average carbon dioxide damage over the years in India was
$81456530941 while it is $43932734.2 in Bhutan. This can also be explained by
the amount of land dedicated to forest area which in turn acts as a major
catalyst in mitigating the damage caused on account of the carbon dioxide
release.

Gokhale Institute of Politics and Economics, Pune

 POPULATION
INDICATORS

The percentage of population growth has been decreasing for India and
Bhutan. The graph of the decrease of percentage of population growth in India
has been steeper than Bhutan, which implies that the Indian population has
been growing at a lesser rate than that in Bhutan. While the population
percentage in India in 2015 was 1.12%, it reduced to 1.02% in 2019. The same
was 1.22% and 1.15% for the years 2015 and 2019 respectively, for the country of
Bhutan. The average population growth has been 1.06% in India and 1.19% in
Bhutan.

The percentage population growth in urban areas in India has been steadier
than that in Bhutan. The Urban population growth in India was 2.323% in 2015
and was 2.306% in 2019. The same was 3.2 % in 2015 for Bhutan and 2.9% in
2019.

Gokhale Institute of Politics and Economics, Pune

 CONCLUSION

Bhutan is a small economy in terms of its geography and economic

development. It is a closed economy situated in the eastern Himalayas
between India and of course People’s Republic of China. If we observe the data
of 2017 Census, Bhutan has been a shelter to a population of around 7,35,000
people which was ruled by a popular monarchy till 2008. Soon, the monarchy
decided to transform Bhutan to a democratic state in order to ensure that
people could actually feel voice to run their future. Integral to the Bhutanese
ethics as well as its philosophy stands their belief in Vajrayana Buddhism
which has laid a pivot for the country’s progress for many years around. At the
heart of this philosophy there are some key components of compassion and
respect for everyone as well as for the government to look after their citizens
.This small yet developing economy is driven by three key parameters known
as hydroelectric power, tourism and agriculture. Bhutan tends to enjoy trade
connections with India at large scale, which has been a constant supporter over
the years.

Significant progress in the level of real per capita GDP ranging from about
US$400 in 1980 to US$2,800 in 2016 was observed, and now Bhutan is nearing
middle-income status. Over the years, a constant discussion over the Gross
National Happiness has been there in the case of Bhutan, which is referred to
as a major indicator of its development. In 1972, the fourth king of Bhutan,
Jigme Singye Wangchuck declared that “Gross national happiness is more
important than Gross domestic product”. As GDP growth in Bhutan is highly
dependent on investment made by the government, majorly in the
hydropower and construction sector, which is related with the former. It was
noted that India’s GDP was steadily falling from 2015 to 2019, the current
slowdown in India is the third slowdown since 1996 and is noted to be the
longest since the last 23 years.

Gokhale Institute of Politics and Economics, Pune

 CONCLUSION

The 2019 slowdown of Indian economy has been credited by the

amalgamation of both internal and external factors as synchronised the global
slowdown, demonetisation, poor implementation of GST, declining
investment in construction and infrastructure. The slowdown has pushed
Prime Minister Narendra Modi’s dream of making India a five trillion
economy by 4 years. The reasons for the previous longest slowdown were
noted to be high inflation fuelled by rising crude prices, inflation had
remained persistent despite RBI hiking the repo rate. Bhutan’s FDI was noted
to be persistently negative in 2017 as the share of FDI in Bhutan's GDP tends to
remain comparatively low if compared to the other developing countries. If
we look at UNCTAD 2020 World Investment Report, the total stock was
marked at USD 141 million during 2019. As it turned negative in 2017, FDI
inflows we observed to recover in 2018 and reached USD 6 million and even
increased to about USD 7 million in 2019. Despite this recent rise in FDI
inflows, Bhutan still remains to be an Asian country who still stands at the
position of attracting the least FDI, maybe due to its small size. Also the real
effective exchange rate has been stable in Bhutan, as it can be noted that
nominal exchange rate is depreciating since 2018, since the time Bhutanese
ngultrum is pegged to Indian rupee. The main reason for depreciation is due
to the Indian rupee as India accounts for about 80 percent of the country’s
trade, the price developments of these countries are noted to be parallel.
External debts are observed to remain high but have not increased so much.

India’s positive economic outlook can be framed by the fact that the most
recent India Macro Poverty Outlook in October 2016, has estimated that real
GDP growth between the years 2016 and 2018 is estimated to be 7.6% to 7.8%,
almost the similar growth performance in 2014 as well as 2015 provided the
strong economic relationship between Bhutan and India, the positive
economic outlook is quite beneficial for Bhutan. Also, the framework for
continued poverty reduction is noted to be positive. With such an accelerated
growth, the poverty headcount rate is noted to be 1.9% in 2015 and 0.9% in
2018.

Gokhale Institute of Politics and Economics, Pune

 CONCLUSION

We observed that there has to be no impact of an increase in economic growth

on unemployment reduction, both in the short as well as long run. This
implies that the Okun’s Law failed to hold true in the case of Bhutan. However,
studies confirm an inverse relation between inflation and unemployment in
the short run, which implies that Phillip’s Curve stands to hold true for Bhutan
in the short run. As inflation rises, unemployment falls or we can interpret this
as employment rise, the prices of goods and services also rise.

Gokhale Institute of Politics and Economics, Pune

 REFERENCES

Reference links

1. Bhutan indicators
https://databank.worldbank.org/reports.aspx?source=2&country=BTN

2. Indian indicators
https://databank.worldbank.org/reports.aspx?source=2&country=BTN

3. Overview of Bhutan
https://www.worldbank.org/en/country/bhutan/overview

4. Overview of India
https://www.worldbank.org/en/country/india/overview

5. Indicator classification
https://databank.worldbank.org/views/reports/reportwidget.aspx?
Report_Name=CountryProfile&Id=b450fd57&tbar=y&dd=y&inf=n&zm=n&co
untry=BTN

6. Bhutan Report- HDI and GDI

http://hdr.undp.org/sites/all/themes/hdr_theme/country-notes/BTN.pdf
http://hdr.undp.org/sites/all/themes/hdr_theme/country-notes/IND.pdf

Gokhale Institute of Politics and Economics, Pune