India–Bhutan Relations: Treaties, Hydropower, Doklam

Former President Pranab Mukherjee, speaking in Thimphu in November 2014, described India–Bhutan ties as “an exemplary bilateral relationship between two neighboring countries.”

India and Bhutan share a close and time-tested partnership based on mutual trust, geographical proximity, cultural ties and strategic cooperation. Their relationship has evolved from a traditional security-oriented partnership into a broad-based engagement covering trade, hydropower, education, digital payments, infrastructure and sustainable development.

The relationship is anchored in the Treaty of Friendship and Cooperation signed in 1949 and revised in 2007. Diplomatic relations were formally established in 1968. For India, Bhutan is important for regional security and the protection of the Siliguri Corridor. For Bhutan, India remains a major trading partner, development partner and destination for hydropower exports.

Evolution of India–Bhutan Relations

India–Bhutan relations have developed through several important treaties and agreements.

1. Treaty of Punakha, 1910

Under the Treaty of Punakha, Bhutan became a protected state under British India. Britain exercised influence over Bhutan’s external affairs and defence, shaping the framework of Bhutan’s relationship with the outside world.

2. Treaty of Friendship, 1949

After India’s Independence, India and Bhutan signed the Treaty of Friendship in 1949. It recognised Bhutan’s sovereignty while establishing a close bilateral relationship. The treaty included a provision concerning India’s guidance to Bhutan on external affairs.

3. Trade, Commerce and Transit Agreement, 1972

The agreement established a framework for free trade and the duty-free transit of Bhutanese goods through India. It strengthened economic integration and helped Bhutan access wider markets.

4. Hydropower Cooperation Agreement, 2006

Hydropower emerged as a major pillar of bilateral relations. Cooperation enabled India to support Bhutan’s hydropower development and import surplus electricity, generating economic benefits for both countries.

5. Revised Treaty of Friendship, 2007

The 2007 revision removed the earlier guidance clause concerning Bhutan’s external affairs and reaffirmed the relationship as one between sovereign partners based on mutual interests and cooperation.

The revised treaty represented an important step towards a more equal and contemporary partnership.

Major Areas of Cooperation Between India and Bhutan

1. Trade and Economic Relations

India is Bhutan’s largest trading partner and an important source of imports, export destination and investor.

According to the Embassy of India in Thimphu, bilateral trade (excluding electricity) grew from about US$484 million in 2014–15 to US$1,777 million in 2024–25, and India accounted for about 80% of Bhutan’s total trade in 2024. India is also the largest source of foreign direct investment in Bhutan, with about 55% of total FDI inflows.

The Trade, Commerce and Transit Agreement, originally signed in 1972 and last revised in 2016, provides the framework for bilateral trade and transit arrangements. The 2016 version came into force in July 2017 for ten years.

Significance: Economic cooperation supports Bhutan’s development, provides Indian businesses with opportunities and strengthens regional economic integration. However, the concentration of Bhutan’s trade with India also creates a need for economic diversification.

2. Development Partnership

India has been a key development partner of Bhutan since 1961, when Bhutan launched its First Five-Year Plan.

India provided ₹5,000 crore in grants for Bhutan’s 12th Five-Year Plan (2018–23) and has committed ₹10,000 crore for the 13th Plan (2024–29), announced during Prime Minister Modi’s state visit in March 2024. The assistance flows through Project Tied Assistance (PTA) projects, High Impact Community Development Projects (HICDPs) and an Economic Stimulus Package.

Indian assistance supports infrastructure, healthcare, education, connectivity and community-level development.

The development partnership reflects a model of cooperation in which financial assistance is combined with capacity building and local development.

3. Hydropower Cooperation

Hydropower is one of the most significant pillars of India–Bhutan relations. Bhutan’s mountainous terrain and river systems offer considerable potential for hydroelectricity generation, while India has a large and continuing demand for energy.

Five India-assisted projects are in operation: Chukha (336 MW), Kurichhu (60 MW), Tala (1,020 MW), Mangdechhu (720 MW) and Punatsangchhu-II (1,020 MW), a combined 3,156 MW. Punatsangchhu-I (1,200 MW) is under construction.

During Prime Minister Modi’s state visit on 11–12 November 2025, the two sides inaugurated Punatsangchhu-II and agreed to resume main dam work on Punatsangchhu-I, and India announced a ₹4,000 crore concessional line of credit for energy projects. The line of credit agreement was signed during External Affairs Minister S. Jaishankar’s visit in September 2026.

Benefits for Bhutan:

Revenue from electricity exports.
Employment and infrastructure development.
Greater capacity to finance public services.
Opportunities to develop a clean-energy-based economy.

Benefits for India:

Access to renewable electricity.
Improved energy security.
Stronger regional cooperation.
Opportunities for Indian engineering, construction and power-sector companies.

However, hydropower projects can face construction delays, financing difficulties, tariff disagreements and environmental concerns. A sustainable partnership requires transparent project agreements, fair commercial arrangements and effective environmental safeguards.

4. Connectivity and Infrastructure

Geographical proximity provides India and Bhutan with opportunities to deepen connectivity through roads, railways, border facilities and multimodal transport.

In September 2025 the two countries signed an agreement for their first cross-border rail links: Kokrajhar (Assam) to Gelephu (69 km) and Banarhat (West Bengal) to Samtse (20 km), costing about ₹4,033 crore and fully funded by India. Gelephu is the site of Bhutan’s planned Gelephu Mindfulness City, which India supports.

Other projects include the Integrated Check Post at Darranga in Assam (opened in November 2024), the inland waterway terminal at Jogighopa, which Bhutan can use for cargo, and a planned Integrated Check Post at Hatisar, opposite Gelephu, agreed in November 2025.

Improved connectivity can reduce transportation costs, facilitate tourism, support trade and strengthen people-to-people ties.

5. Cultural and Civilisational Relations

India and Bhutan share deep Buddhist and cultural connections. Guru Padmasambhava, associated with the spread of Buddhism in Bhutan during the eighth century, represents an important link between the two societies.

Bhutanese pilgrims visit important religious and historical sites in India, including Bodh Gaya, Rajgir and Nalanda. The Royal Bhutan Monastery at Bodh Gaya is another symbol of these cultural links. See our note on Buddhism and Jainism in Bihar.

Cooperation in temple construction, religious tourism, cultural festivals and heritage preservation strengthens mutual understanding beyond formal diplomatic relations.

6. Education and Capacity Building

India provides educational opportunities, scholarships and professional training to Bhutanese citizens.

According to the Ministry of External Affairs, over 1,500 Bhutanese students hold Government of India scholarships, and India offers about 325 training slots a year under the Indian Technical and Economic Cooperation (ITEC) programme. In September 2026 India doubled ICCR scholarships for Bhutan from 30 to 60 and raised seats for Bhutanese students at Nalanda University from 30 to 55.

Thousands of Indian professionals also work in Bhutan in sectors such as hydropower, infrastructure, education and trade.

Educational exchanges and capacity-building programmes develop professional networks and reinforce the long-term relationship between the two countries.

7. Digital, Space and Financial Cooperation

Digital cooperation has become an emerging area of bilateral engagement.

Important initiatives include:

India–Bhutan SAT: A joint satellite launched on PSLV-C54 in November 2022 that supports cooperation in space technology and capacity building.
RuPay: Facilitates digital payment cooperation and financial connectivity.
BHIM-UPI: Supports the development of interoperable digital payment systems.
Digital Drukyul: Bhutan’s digital transformation initiative.
STEM and fintech cooperation: Encourages collaboration in science, technology, education and financial services.

UPI Phase-II, launched on 17 September 2026, lets Bhutanese visitors pay through UPI in India, completing two-way UPI connectivity. RuPay cards have worked in Bhutan since 2019–20 and BHIM-UPI since 2021.

Such cooperation can strengthen financial inclusion, support tourism and demonstrate how digital public infrastructure can contribute to regional integration.

Recent developments in India–Bhutan relations (2025–26)

September 2025: agreement on the first two cross-border rail links, Kokrajhar–Gelephu and Banarhat–Samtse (about ₹4,033 crore).
11–12 November 2025: Prime Minister Modi’s state visit for the Fourth King’s 70th birth anniversary: Punatsangchhu-II inaugurated, a ₹4,000 crore line of credit for energy announced, the Hatisar check post agreed, and land offered in Varanasi for a Bhutanese temple.
16–18 September 2026: External Affairs Minister S. Jaishankar’s visit: the line of credit agreement signed, work on the Punatsangchhu-I dam resumed, and Bhutan’s support for India’s bid for a UN Security Council seat in 2028–29.
17 September 2026: UPI Phase-II launched, completing two-way UPI payments between the two countries.

Strategic Importance of Bhutan for India

Bhutan occupies a strategically important position in the eastern Himalayas. Its location, close to India’s northeastern states and the sensitive India–China border region, gives it considerable significance for Indian security.

1. Protection of the Siliguri Corridor

The Siliguri Corridor, commonly known as the “Chicken’s Neck,” connects mainland India with its northeastern states. It is strategically sensitive because of its narrow geography and proximity to the borders of Nepal, Bhutan, Bangladesh and China.

Bhutan’s location, particularly in relation to the Doklam plateau and the Chumbi Valley, is important for India’s assessment of potential security threats to the corridor.

Strong India–Bhutan relations contribute to regional stability and help India manage security concerns along its Himalayan frontier.

2. Strategic Importance of Doklam

Doklam is a strategically sensitive plateau near the tri-junction area involving India, Bhutan and China. Bhutan and China have competing territorial claims in the region.

The 2017 Doklam standoff occurred after Chinese road construction activity in the disputed area prompted intervention by Indian troops. The confrontation lasted approximately 73 days before the forces disengaged.

Doklam is important because of its proximity to the Chumbi Valley, a narrow stretch of Chinese territory between Sikkim and Bhutan. Developments in this area can affect the wider security environment around the Siliguri Corridor.

For India, the situation is closely connected with border security and regional military balance. For Bhutan, it concerns territorial sovereignty and the management of its border dispute with China.

The issue demonstrates why India and Bhutan need close communication, mutual understanding and diplomatic coordination.

3. Regional Security and Defence Cooperation

India and Bhutan cooperate on security matters, including training and capacity building.

The Indian Military Training Team (IMTRAT) trains Bhutanese security personnel. The two countries also coordinate on concerns involving illegal crossings, smuggling and insurgent movement.

Their largely peaceful border and established security cooperation provide an important foundation for stability in the eastern Himalayan region.

4. Energy Security

Bhutan’s hydropower potential provides India with access to renewable electricity. Cooperation supports energy diversification and can complement India’s wider transition towards cleaner energy sources.

5. Regional Diplomacy

India and Bhutan engage through regional platforms and initiatives, including SAARC, BIMSTEC and BBIN-related cooperation.

Their relationship supports India’s broader engagement with the Himalayan region and contributes to stability in South Asia.

Significance of India–Bhutan Relations for Bhutan

The relationship is also important for Bhutan’s economic development, energy exports and international connectivity.

Economic development: Indian assistance supports infrastructure, healthcare, education and public services.

Hydropower revenue: Electricity exports to India generate significant revenue and contribute to Bhutan’s economic development.

Trade and market access: India provides access to a large market and facilitates the transit of Bhutanese goods.

Financial stability: Financial cooperation, including currency-swap and standby-credit facilities from India, supports economic resilience.

Education and skills: Scholarships, training and professional exchanges help develop Bhutanese human resources.

Digital development: Space, fintech and digital-payment cooperation supports technological modernisation.

People-to-people links: Tourism, education, cultural exchanges and employment opportunities reinforce social connections between the two countries.

The relationship therefore provides Bhutan with important opportunities, while also making economic diversification and balanced cooperation necessary long-term objectives.

Major Challenges in India–Bhutan Relations

Despite their close partnership, India and Bhutan face several challenges that require careful diplomatic management.

1. China Factor and Border Disputes

China’s growing regional influence and its border negotiations with Bhutan are important concerns for India.

The Doklam plateau and other disputed areas have strategic implications because of their proximity to sensitive Indian territory.

Bhutan must manage its territorial disputes while safeguarding its sovereignty. India, meanwhile, needs to protect its security interests without appearing to undermine Bhutan’s independent foreign-policy choices.

2. Economic Dependence and Trade Imbalance

Bhutan’s substantial dependence on India for trade, investment, hydropower cooperation and development assistance creates economic vulnerabilities.

A concentrated economic relationship may limit Bhutan’s bargaining flexibility and expose it to disruptions in specific sectors.

Bhutan’s trade deficit and limited diversification into areas such as tourism, information technology and sustainable industries are additional concerns.

The objective should not be to weaken bilateral economic ties, but to make Bhutan’s economy more diversified and resilient.

3. Hydropower-Related Concerns

Hydropower projects can involve high initial costs, long construction periods and complex financing arrangements.

Differences over electricity tariffs, project terms and delays can create tensions. Environmental concerns, including the impact of large infrastructure projects on river systems and downstream communities, also require attention.

Both countries need transparent agreements, reliable project assessments and mechanisms for resolving disputes.

4. Connectivity and Infrastructure Gaps

Although connectivity has improved, road, rail and transport links remain limited in some areas.

Bhutan’s environmental priorities also influence its approach to regional connectivity arrangements. Bhutan’s National Council rejected the BBIN Motor Vehicles Agreement (signed in 2015) in November 2016, citing environmental, economic and sovereignty concerns, and Bhutan has still not ratified it; the other three countries have been allowed to go ahead without it.

Infrastructure development must therefore account for ecological protection, local communities and Bhutan’s development priorities.

5. The “Big Brother” Perception

A section of Bhutanese opinion has historically viewed India’s influence as overly dominant. This perception can arise from the unequal size of the two economies and Bhutan’s reliance on Indian support.

The revision of the 1949 treaty in 2007 was an important step in reaffirming Bhutan’s sovereignty and an equal partnership.

India should continue to respect Bhutan’s independent decisions and avoid actions that could be interpreted as interference in its internal or external affairs.

6. Environmental and Social Sensitivities

Bhutan places strong emphasis on environmental conservation and Gross National Happiness, a development philosophy that gives importance to well-being and sustainability.

Large infrastructure projects can sometimes create tensions between economic growth, ecological protection and local interests.

Cooperation must ensure that development projects respect Bhutan’s environmental priorities and adequately assess social impacts.

7. Border Management

The India–Bhutan border is largely peaceful, but illegal crossings, smuggling and possible insurgent movement remain areas of concern.

Effective border management requires intelligence sharing, coordination between security agencies and improved infrastructure without disrupting legitimate trade or local communities.

Way Forward: Strengthening the India–Bhutan Partnership

A stronger relationship requires strategic coordination, economic diversification and respect for the priorities of both countries.

1. Respect Bhutan’s Sovereignty

India should continue to treat Bhutan as an equal sovereign partner and respect its independent diplomatic choices.

On China-related issues, regular consultations and discreet diplomacy can help maintain trust while protecting legitimate security interests.

2. Develop a Transparent Hydropower Partnership

Both countries should improve the transparency of project financing, electricity tariffs and risk-sharing arrangements.

Cooperation should also extend beyond conventional hydropower to integrated renewable-energy systems involving solar, wind and storage, where technically and economically appropriate.

Environmental assessments and downstream impact management should form an integral part of project planning.

3. Strengthen Security Coordination

Regular high-level consultations on regional security can improve coordination on China-related developments and sensitive border areas.

Training, intelligence sharing and cooperation between security agencies should be strengthened while respecting Bhutan’s sovereignty.

4. Diversify Economic Cooperation

India can help Bhutan develop sectors beyond hydropower, including tourism, information technology, education, healthcare, agriculture and sustainable industries.

Support for Bhutanese startups, skills development and market access can create new employment opportunities and reduce economic vulnerability.

5. Improve Connectivity

Progress on cross-border road, rail, border-check-post and multimodal projects can reduce transport costs and expand trade.

Connectivity initiatives should be implemented in consultation with Bhutan and designed to protect sensitive ecosystems.

6. Expand Digital and Financial Integration

Cooperation on UPI, RuPay, fintech, space technology and digital public infrastructure can support tourism, trade and financial inclusion.

Student exchanges, professional mobility and joint STEM research can deepen technological cooperation.

7. Strengthen Cultural and People-to-People Ties

Religious tourism, Buddhist heritage circuits, educational programmes, cultural festivals and youth exchanges can reinforce mutual trust.

Joint research on Himalayan ecology, climate change and disaster management can also build shared knowledge and institutional cooperation.

8. Promote Sustainable Development

India and Bhutan should expand cooperation in renewable energy, climate resilience, eco-tourism, biodiversity protection and disaster management.

Development initiatives should align economic objectives with Bhutan’s environmental priorities and the welfare of local communities.

9. Improve Border Management

Regular coordination, better border infrastructure and joint action against smuggling and illegal movement can strengthen security while facilitating legitimate travel and commerce.

10. Build a More Resilient Economic Partnership

The two countries should encourage investment in new sectors, strengthen supply chains and promote balanced commercial opportunities. Diversification can make Bhutan more resilient without reducing the strategic value of its partnership with India.

Conclusion

India–Bhutan relations represent an important example of a close bilateral partnership based on history, trust, development cooperation and shared security interests. Over time, the relationship has expanded from treaty-based diplomacy to a comprehensive engagement covering hydropower, trade, education, infrastructure, digital technology and culture.

However, China’s growing influence, the strategic sensitivity of Doklam, economic dependence, hydropower-related concerns and environmental priorities require careful management.

The way forward lies in a partnership that combines strategic coordination with respect for sovereignty, economic cooperation with diversification, and infrastructure development with environmental sustainability.

By strengthening mutual trust and ensuring that cooperation serves the interests of both countries, India and Bhutan can continue to contribute to regional stability and shared prosperity.

Frequently asked questions

When was the India–Bhutan Treaty of Friendship signed and revised?

It was signed in 1949 and revised in February 2007. The revision removed the clause under which Bhutan agreed to be “guided by” India’s advice on external affairs.

Which hydropower projects has India built in Bhutan?

Chukha (336 MW), Kurichhu (60 MW), Tala (1,020 MW), Mangdechhu (720 MW) and Punatsangchhu-II (1,020 MW, inaugurated in November 2025), a total of 3,156 MW. Punatsangchhu-I (1,200 MW) is under construction.

What happened at Doklam in 2017?

Indian troops stopped Chinese road construction on the Doklam plateau, which Bhutan claims, leading to a standoff of about 73 days from 16 June to 28 August 2017, when both sides disengaged.

Why is Bhutan important for India’s security?

Bhutan sits beside the Siliguri Corridor (“Chicken’s Neck”) that links mainland India with the North-East, and next to the Chumbi Valley and Doklam, so its stability and its border talks with China matter directly to India.

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