Recently, India disbursed the fifth tranche of the India-Bhutan Economic Stimulus Programme (ESP) of ₹250 crore reaffirming its central role in catalysing Bhutan’s economic revitalisation, post-pandemic recovery, and generating employment. India has committed a total of ₹1,500 crore under ESP, out of which ₹1,250 crore has been disbursed to date. Another cheque of ₹250 crore was handed over under the National Fuel Price Smoothening Framework, to reduce the impact of rising fuel prices on Bhutanese economy.
India remains Bhutan’s primary development partner, with more than 30% of the capital expenditure in Bhutan’s 2026-27 budget supported directly through Indian grants. For the 13th Five-Year Plan (2024-2029), India has committed a total of ₹10,000 crore. To date, approximately ₹3,400 crore has been released, covering project assistance and high-impact community development initiatives such as Digital Drukyul, hospitality and tourism, start-ups and innovation as well as education. This cooperation is unique in South Asia.
Hydropower is the cornerstone of the partnership, providing Bhutan with significant revenue and India with reliable clean energy. And this partnership has moved beyond mere power purchasing into a comprehensive economic stabilisation framework. Few major projects at the operational stages are Chukha, Kurichhu, Tala, Mangdechhu and Punatsangchhu-II. The institutional framework reached a new milestone in April 2026 with the signing of the Tariff Protocol for Punatsangchhu-II and the Reactive Energy Accounting methodology. It is important to highlight that the entry of Indian private sector giants like Tata Power, Adani, and Reliance into the Bhutanese market has provided a significant push to this sector. Additionally, the current focus on reservoir-based projects like Sankosh (2,585 MW), aims to provide Bhutan with year-round energy security and enhanced storage capacity crucial to address seasonal electricity shortages and reduce import during dry winters.
The two sides have strengthened connectivity, via, two landmark cross-border rail links, the 69-km Kokrajhar-Gelephu link and the 20-km Banarhat-Samtse link, funded entirely by India, these links integrate Bhutan into the broader regional economy. The implementation of RuPay and BHIM UPI further linked the two fintech ecosystems. Further, the launch of the India-Bhutan Satellite in 2022 and the Ground Earth Station in Thimphu provides critical disaster management and broadcasting capabilities.
But Bhutanese economy faces major challenges especially in terms of current rate of youth migration, particularly to Australia. The Gelephu Mindfulness City (GMC) is the King’s strategic solution to this crisis, designed to create a high-tech, sustainable urban hub to retain Bhutanese talent. Here, huge investments, especially via the Indian private sector, is expected. Additionally, to remain relevant to younger generations, India has provided support to the youth under the Gyalsung National Service with a ₹200 crore grant and a ₹1,500 crore loan to support this military and national education programme.
It is essential to reinforce the stability of bilateral ties in an increasingly complex South Asian landscape. Bhutan’s geographic position makes it central to India’s northern security architecture. The geopolitical sensitivity is underscored by the contested 477-km border Bhutan shares with China. Beijing claims 495 sq km in the north-central sector (Pasamlung and Jakarlung) and 269 sq km in the west, including the strategically vital Doklam plateau overlooking India’s Chicken’s Neck (Siliguri Corridor). In 1997, Beijing offered a ‘Package Deal’ to Bhutan, proposing to drop claims in the north in exchange for the western territories (Doklam). Bhutan’s refusal, in deference to India’s security concerns, highlights the depth of the partnership.
Bhutan and China concluded the 25th round of border talks in 2023 and thereby follow a Three-Step Roadmap; India insists that settlements at the tri-junction involve all three stakeholders to prevent any adverse impact on India’s connection to its Northeast. Shared security concerns have thus translated into a deep-rooted military collaboration, as the Indian Military Training Team (IMTRAT) provides joint training to the Royal Bhutan Army and Project DANTAK, spearheads building of the strategic infrastructure necessary for both commerce and strategic mobility.
At the same time, Bhutan has adopted a soft balancing strategy, as stated by SD Muni during the ICWA Panel Discussion on India-Bhutan relations on June 25, 2026. Bhutan has expanded formal relations with over 60 nations and participated in multilateral forums (UN, BIMSTEC, BBIN) to advocate for developmental priorities like the climate crisis. And while moving toward a policy space that allows for economic hedging and technological modernisation, Bhutan ensures India as its “indispensable partner.” This diplomatic sensitivity provides the essential stability required to navigate the heightened geopolitical sensitivities on the Himalayan frontier.
The two sides are guided by the value of shared prosperity rooted in the Bharat to Bhutan (B2B) vision, linked via the Himalayas and sacred rivers as well as strengthened via wisdom and guidance of Lord Buddha and Guru Rinpoche. The relationship has successfully transformed from a donor-recipient model into a mature, sovereign partnership based on parity, especially after the revision of the 1949 Treaty of Friendship in 2007.
The two sides also share similar goals, i.e. India has set a goal to become a developed country by 2047 and Bhutan has set a goal to become a high-income country by 2034. India stands committed to make ‘BB’ i.e., Brand Bhutan and Bhutan Believe, a success as stated by PM Modi. Therefore, it is essential to continue with the momentum. Prioritising the faster implementation of reservoir-based hydropower projects to mitigate seasonal energy imports and debt concerns. Facilitating the entry of more Bhutanese non-electricity exports into the Indian market to correct the persistent trade deficit. And finally, being part of Bhutan’s growth story which is being driven by GMC. The India-Bhutan relationship remains a unique diplomatic template where geographical proximity and parity coexist, ensuring that the civilisational and economic continuum remains resilient even in a competitive geopolitical era.
(The views expressed are personal)
This article is authored by Cchavi Vasisht, associate fellow, Chintan Research Foundation, New Delhi.
