India-Bhutan relations: recent advances since the Doklam Standoff of 2017

India’s role in Bhutan’s economy is enormous too. India is Bhutan’s largest trade
partner, accounting for 79 percent of Bhutan’s total imports and 90 percent of its
exports. Bhutan’s hydropower sector, which contributes 14 percent of its GDP and 27
percent of government revenue, is financed largely by India. Besides, India provides
a market for three-fourths of Bhutan’s hydropower production, with the rest being
consumed locally. India is Bhutan’s largest aid donor too and has financed much of its
Five-Year economic plans.

Sudha ramachandran points out that a small but growing number of Bhutanese are
critical of India’s grip over their economy and foreign policy. They describe its role in
Bhutan’s hydropower sector as exploitative. “Not only are the terms on which India is
financing the hydropower projects unfavorable to Bhutan but also, it is getting
electricity from Bhutan at cheap rates,” the Bhutanese official pointed out.
Importantly, Bhutanese are arguing that as a sovereign country, Bhutan should be able
to determine its own foreign policy. Not establishing a normal relationship with China
“at the behest of India” is seen as imperiling Bhutanese sovereignty.

Importantly, Bhutan is increasingly keen to settle its territorial dispute with China.

China lays claim to 764 square kilometers of territory, including 495 sq km in the
Jakurlung and Pasamlung Valleys in north-central Bhutan and another 269 sq km in
western Bhutan, comprising the Doklam Plateau.

Although Bhutan and China do not have official diplomatic relations, they have
engaged in direct bilateral talks since 1984 to settle the border dispute. Twenty-five
rounds of talks have taken place so far. China has reportedly offered Bhutan a
“package deal,” under which it will recognize Bhutanese control over the Jakurlung
and Pasumlung Valleys in return for Thimphu ceding control over Doklam to China.
Additionally, Beijing is reportedly insisting on Bhutan establishing trade and
diplomatic relations as a quid pro quo for a border settlement.

China has intimidated Bhutan repeatedly on the Doklam question. Although the two
countries signed an agreement in 1998, promising to maintain peace and tranquility
along the Sino-Bhutanese border areas, Beijing has carried out several
incursions there. In November 2007, for instance, its soldiers dismantled several
unmanned posts near the Chumbi Valley.

China’s building of roads in Doklam triggered a serious crisis last year at this tri-
junction, resulting in a 73-day standoff.

In August 2017, India and China agreed on an “expeditious disengagement” from the
area. However, satellite images reveal that Chinese troops have not pulled out.
Indeed, Chinese road building and helipad construction continues. Therefore, the
possibility of another India-China face-off here cannot be ruled out.

While Doklam is strategically important to India and China, its value to Bhutan is
more economic than strategic; Doklam’s rich pastoral land supports the livelihoods of
people living in Bhutan’s western border districts.
Ceding it to China would impose economic costs on Bhutan but it would give the
latter settled borders. However, it would draw New Delhi’s ire.

During the Doklam crisis, “Thimphu walked on eggshells, balancing between India’s
stifling embrace and the potential consequences from China,” Indian defense analyst
Ajai Shukla observed. The crisis underscored to the Bhutanese that their unresolved
border dispute with China was leaving them vulnerable to entanglement in big power
rivalries. Understandably, it has injected a sense of urgency in Thimphu to settle the
border dispute with China. Bhutan’s new government is under some pressure from the
Bhutanese people to act on this issue.

In addition, there are economic compulsions that would prompt the government to
reach out to China. Diversifying Bhutan’s hydropower-centric economy was one of
the main election promises of the DNT and the government can be expect to set this
in motion. Bhutan’s hydroelectric sector accounts for almost 80 per cent of the
country’s external debt – to focus on developing industries and other employment
generating sectors such as Tourism.

Such steps to diversify the economy, “will affect relations with India,” S. D. Muni, a
former diplomat and Professor Emeritus at the Jawaharlal Nehru University in New
Delhi has said.

Even without official relations, China has a significant presence in the Bhutanese
economy. A third of Bhutan’s consumer imports consist of Chinese goods, which are
making their way into Bhutan through third countries, Muni points out.

This Chinese presence will grow manifold once diplomatic and economic ties are
established. It could enhance Chinese influence over Bhutan, as it has in India’s other
neighbors, such as Sri Lanka. There is concern in India that Bhutan could quickly slip
into a debt trap, forcing Thimphu to hand over strategic assets to the Chinese in
exchange for debt relief, as was Sri Lanka’s experience.

There is concern in New Delhi that such a scenario would compel Bhutan to cede
Doklam to China. India has often been criticized for treating Bhutan as a protectorate.
However, India has sought to meet Bhutanese aspirations in the past. It was India that
sponsored Bhutan’s membership in the United Nations in 1971. Importantly, it
replaced the 1949 Treaty with the Treaty of Friendship in 2007, which brought into
the India-Bhutan relationship “an element of equality.”

Bilateral relations between the two countries completed 50 years last year and a
host of programmes were held to mark the historical moment.
The DNT government in Bhutan came to power on the slogan “Narrowing the
Gap” and has looked at addressing income disparity and growing
unemployment. The government is also looking to diversify Thimphu’s trade,
the latter largely dominated its hydropower exports to India.

Also, Bhutan is all set to graduate from UN’s Least Developed Country
status by 2023 and a robust economy with vibrant private sector is a requisite
for that. Thimphu cannot for long resist foreign direct investment and opening
up its market. It is also eyeing at the membership of the World Trade
Organization.

China’s advances

Bhutan declined an invitation to attend the Belt and Road Initiative (BRI)
conference held in Beijing in April this year that saw the participation of more
than 40 heads of states. However, if Bhutan’s media is to go by, its civil
society is warming up to China’s advances. The rationale for Bhutan’s civil
society to open up to China is premised on the need for diversifying its foreign
trade that it argues to be heavily leaning in India’s favour.

Though, Chinese offers to further intensify trade have so far been snubbed by
Thimphu, the prowess of the Chinese economy is having a marked influence
upon Bhutan’s urban population with internet available on fingertips. Chinese
exports to Bhutan in terms of value are third, closely reeling behind India and
South Korea, which are first and second largest exporters.

The pressure on the government was palpable when Prime Minister Dr. Lotay
Tshering in January this year had reportedly said that his country is willing
to strengthen pragmatic cooperation with China including tourism and resolve
the border issue at an early date through friendly consultations.
In the backdrop of such developments, it is important for the Indian EAM to
focus on strengthening political relations between the two countries.

Recent advances following the foreign minister S. Jaishankar and PM

Modi’s visit of 2019

The two countries also signed 10 MoUs to infuse new energy in their ties. Both
inaugurated the 720MW Mangdechhu hydroelectric power plant. Mr. Modi also
launched the RuPay Card in Bhutan aimed at boosting tourism from India. Also
an additional $100 million will be available to Bhutan under a standby swap
arrangement to meet the foreign exchange requirement. Also both sides
inaugurated the Ground Earth Station and SATCOM network, developed with
assistance from ISRO for utilization of South Asia Satellite in Bhutan.

India is providing ₹5,000 crore for Bhutan’s 12th five-year plan that began in 2018,
the same as the allocation for the previous plan. Hydro-power, however, will continue
to be an important sector of cooperation between the two neighbours with the two
sides looking to start discussions on the 2,500 MW Sankosh project.