Indian Politics & Policy Volume 1, Number 2, Fall 2018 | Page 79

Indian Politics & Policy
section, based on detailed confidential
interviews. 10
Bhutan
The assistance relationship with Bhutan,
along with Nepal, is the oldest and most
consistent. India’s relations with Bhutan
have been governed by the India–Bhutan
Treaty of August 8, 1949, and the
updated and revised treaty called the
India–Bhutan Friendship Treaty signed
in February 2007, by which India de facto
controlled its foreign relations, a carry-forward
of the situation before Indian
independence. Bhutan is a monarchy
that inherited and continued its strategic
status after India’s independence as
a Himalayan buffer state between India
and China, and still does not have formal
diplomatic relations with China, although
relations are growing despite an
unresolved border. India now accounts
for 80 percent of Bhutan’s imports and
94 percent of its exports, although the
former figure is expected to be rapidly
reduced by Bhutan’s growing relations
with China. Bhutan’s export earnings
are overwhelmingly from its export of
hydroelectric power to India. India is
the largest trade and development partner
of Bhutan. Bhutan along with Nepal
became a priority country after the
October–November 1962 Sino–Indian
border war. Assistance to Bhutan has
been integrated into India’s planning
process and a number of grants are
made under the head of Plan grants by
the MEA.
After the shift in India’s overall
assistance policy from 2004, and
stepped-up border management and
security cooperation by Bhutan in December
2003–January 2004 in taking
action against Indian insurgent groups
(United Liberation Front of Assam)
holed up in Bhutan, Bhutan’s Ninth
Plan assistance was reviewed. In March
2004, an Indo-Bhutan Group on Border
Security and Management was established.
The subsequent stepping up of
assistance has to be seen in this context.
In 2005, it was decided to renew
the bilateral Trade, Commerce and
Transit Agreement for another 10 years,
and an umbrella agreement on power
projects in Bhutan was finalized. In
2008, on the occasion of the centenary
of the Wangchuck dynasty and the coronation
of the fifth king, India agreed
to double its assistance to Bhutan’s 10 th
five-year plan (over the ninth plan)
to Rs. 34,000 m ($700 m). This would
consist of Rs. 20,000 m ($400 m) for
65 projects, mostly small development
projects (SDPs), first introduced in Nepal
and then in Bhutan, to be spread all
over Bhutan. In March 2009, an Empowered
Joint Group on Hydroelectric
Power Development in Bhutan met to
discuss the development of 10,000 MW
of hydropower generation in Bhutan
for export to India by 2020. Implementation
agreements were signed later, indicating
growing economic integration
with India.
Nepal
Nepal, another Himalayan buffer state
between India and China, is vital for
India’s border security, particularly after
the 1962 border war with China.
The 1,850 kilometer Indo-Nepal border
is a porous one with free movement of
people. Nepal is a weak and unstable
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