Despite its smallness, Bhutan holds a lot of growth potential that could energize the entire region in many different ways.
As the budding constitutional monarchy is gradually maturing in Bhutan, the country’s Prime Minister, Tshering Tobgay, is making efforts to have more trade with neighboring India in a bid to maintain a high rate of economic growth at home and to meet increasing demand for business and job
opportunities from the country’s youth. In this respect, Prime Minister Tobgay has especially stepped up efforts to have enhanced trade ties with the Indian state of West Bengal, which borders the tiny Himalayan country.
Already, India is the largest trading partner of India with 99 per cent of Bhutanese exports landing in India and Thimbu also getting 90 per cent of its imports from Delhi. Thus, the Bhutanese economy is almost entirely dependent on India and has extremely cordial relations with New Delhi. This explains the overtures of PM Tobgay towards West Bengal and his efforts to open lucrative trade avenues with the Indian province.
The very reason for Bhutan to expand her economic and trade relations with India and particularly the state of West Bengal is the phenomenal growth of the Bhutanese economy. Bhutan has been maintaining a high rate of economic growth in recent years with current GDP growth hovering above 8 percent. In order to maintain this economic growth, Bhutan needs foreign investment. Keeping in view the Indian state of West Bengal’s high stakes in Bhutan, PM Tobgay wants to capitalize on this opportunity to attract as much as foreign investment as possible. He knows that in the present situation, India could be the biggest source of foreign investment in the country. The prime minister, who received his higher education in the United States University of Pittsburgh, even visited the US to seek Washington’s investment in his country. However, attracting US investment may take some time to materialize. Against this backdrop, India and the West Bengal state are the obvious choices for Bhutan to explore trade and investment avenues. Having said this, the efforts by PM Tobgay are aimed at diversifying investment in his state.
On their part, India and the West Bengal for that matter also are profoundly interested in increasing trade and economic ties with Bhutan. The foremost reason is that India is an energy-deficient country and critically needs river water from Bhutan to generate hydroelectric power which, in turn, would be instrumental in maintaining a high rate of economic growth in India. The demand for energy and power has been steadily increasing in India because of the growing population and economic growth. The country would like to have intimate relations with Bhutan so that it could exploit more and more of Bhutanese water resources. For instance, India would earn US$2 billion by investing in the construction of three hydroelectric power projects in Bhutan with a combined installed capacity of 1400 megawatts (MW) and from three other projects, totaling 3000 MW. The fact is that India’s water security is nearly dependent on Bhutanese river water. The importance of Bhutan for India can be gauged from the fact that Prime Minister Narendra Modi, after his inauguration last year chose Bhutan for his first official sojourn.
Bhutan has more ice than any place on Earth besides the poles. The region's mountain ice is so large in quantity that it's often called the "Third Pole" or the "Water Tower of Asia." Glaciers from the plateau supply most of Asia's rivers and, by extension, provide water to some 2 billion people. In fact, Bhutan has enough water to generate 30 gigawatts of electricity, which is about a third of the installed generation capacity of the US.
For India there is also a political reason to go the extra mile to keep Bhutan economically stable, which is a guarantee of its political strength. It has been the consistence policy of India to keep Bhutan completely dependent on itself. This is aimed at making mountain kingdom both a ‘dependency’ and a ‘sphere of influence’ to the exclusion of all other states in the region, particularly China, Delhi’s regional rival.
Indian policymakers are of the view that as long as Bhutan, a theoretically independent state, remains politically and economically stable, it would not go out of India’s sphere of influence and China would not be able to exploit the situation to its utter advantage. This has been the fundamental reason that India, which has political issues with all the major regional countries, including Pakistan, Nepal, Sri Lanka and Bangladesh, has no problems with Bhutan. At the same time, Bhutan which is situated on the southern tip of Tibetan Plateau, sandwiched between China and India, has a key issue with Beijing - that of an unsettled border. Bhutan has diplomatic relations with 52 nations since it established formal ties with India in 1968. It has no diplomatic relations with China as well as the US or the other permanent members of the UN Security Council though it is a geopolitical buffer between Asia’s two giants. This state of diplomatic ties of Bhutan raises many questions regarding the true independence of the country and the domineering influence of India.
Bhutan geography and its water resources are the fundamental determinants of the state’s foreign policy, if it really has one, as well as that of the policies of neighboring states towards Bhutan. If Bhutan has to survive as an independent state, it needs to establish diplomatic relations with China and the US as well as other countries and also start trading with them. History is witness to the fact that a country that is entirely dependent on a sole or couple of other states, has to compromise its political sovereignty. PM Tobgay’s visit to the US and his attempts to attract American investment is a step in the right direction. China and the US must offer attractive terms of trade to Bhutan so that it has no other choice but to allow these countries to have economic ties with them.
However, in the developing scenario in Asia, where the new US Secretary of Defense, Ashton Carter, has come up with a new doctrine of containing China and of using India as a tool, both Washington and Beijing would not be likely to cooperate to pull Bhutan out. Under US policy, Bhutan may get increased strategic importance and its dependence on India may further increase instead of reduction. The Bhutanese prime minister’s overtures towards the Indian state of West Bengal to have more economic ties would show where the situation is going – and Bhutan could prove to be a tiny regional dynamo powering the larger energy roadmap.
It has been the consistence policy of India to keep Bhutan completely dependent on itself.