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Bhutan-India Trade Relations

The Government of India has been associated with Bhutan’s planned development since the start of planned development when the first five-year plan was launched in 1961 and continues to be our main development partner. The mutually beneficial economic ties have been the centrepiece of the Bhutan-India relations. Currently, India is not only Bhutan’s main development partner, but also its leading trade partner.

There has been a free trade and commerce between the territories of India and Bhutan since the signing of the Treaty between the Government of India (GoI) and the Royal Government of Bhutan (RGoB) in 1949. However, the first formal Agreement on Trade and Commerce between GoI and RGoB was signed in 1972 which has undergone five revisions till date (1983, 1990, 1995, 2006 and 2016). The current Agreement on Trade, Commerce and Transit between the Royal Government of Bhutan and the Government of the Republic of India is valid till 2026.

The objective of the Free Trade Agreement (FTA) is to further strengthen the age-old ties and enhance bilateral trade and economic cooperation for mutual benefit and development of the two countries.

The most important features of the Free Trade Agreement are the provision for free trade between the two countries and transit rights for Bhutan’s trade with Third countries. The rapid growth of trade between the two countries is attributed to the free trade arrangement which allows free flow of goods into each other’s territory without any import duty. In addition, the transit right granted through the FTA enables Bhutan to trade with the rest of the world. Bhutan has been able to improve upon these provisions through the successive renewal of the Agreement with addition of new entry and exit points in India for Bhutan’s external trade. The progressive changes made in the scope of the Agreement is reflective of the economic and political progress that Bhutan has achieved over the past decades. The FTA has been very instrumental not just in expanding trade with India but also in facilitating Bhutan’s trade diversification with other trading partners.

India has been the largest and the most important trading partner for Bhutan since the start of the development plans. In 2020, overall trade with India was recorded at Nu. 94.89 billion (including electricity), which accounted for 82% of Bhutan’s total external trade and the figure without including electricity was recorded at Nu. 67.18 billion, which accounted for 77% of Bhutan’s total trade. The overall import from India accounted for 87% of the total import value with or without taking into account trade in electricity. Exports to India accounts for 90% of total exports including electricity and 77% without electricity.

 Major Export Goods:

Bhutan’s major exports to India includes electricity, ferro-silicon, dolomite, semi-finished product of iron or non-alloy steel, Portland pozzalana cement, cardamoms, pebbles gravel, gypsum, carbide of silicon, ordinary Portland cement, etc. The total export value in 2020 including electricity was Nu.43.51 billion and excluding electricity was Nu.27.52 billion.

Major import Goods:

Bhutan’s major imports from India comprise of diesel, petrol, motor vehicles for transport of goods(dumper), ferrous products, telephones, electrical distribution panel board, coke and semi-coke, soya-bean oil, passenger cars and, petroleum bitumen. The total imports from India including electricity was Nu.51.37 billion.

Future prospects:

With the most liberal trading arrangement accorded by the FTA, India is certain to remain as the most important trading partner for Bhutan. The government, therefore, remains steadfast to maintain continued bilateral trade talks to build upon the existing trade relations. The annual bilateral meeting on Trade, Commerce and Transit between GoI and RGoB at Commerce Secretary level (CSLM) has not only been effective in finding appropriate solutions to trade and transit issues hindering bilateral trade, but it has also provided in itself a dedicated forum to explore new avenues for expanding trade and commerce between the two countries.

In view of the close ties of friendship between the two Governments and its people, bilateral trade with India is envisaged to be very instrumental in elevating socio-economic relations to new heights.