India-Bhutan: Furthering Common Interests – Analysis

By VP Haran*

Bhutan like other neighbors, watched with interest and some anxiety as National Democratic Alliance (NDA) swept the polls in May 2014. Indian Prime Minister (PM) Narendra Modi was an enigma to them. They were unsure of what the foreign policy of the Modi government would be. Bhutan was no exception. The invitation to South Asian leaders for the swearing in ceremony was a reassuring message from the new government that it attaches the highest priority to strengthening relations with neighbours. The visit of Bhutan’s PM Tshering Tobgay to Delhi and his meeting with our PM reassured him about the continuity of India’s policy towards Bhutan.

To give practical effect to the ‘neighborhood first’ policy, Modi chose Bhutan for his first foreign visit as prime minister, less than a month after taking office. On the eve of the visit, PM Modi said he is looking forward to his, “first ever visit to Bhutan and to nurturing and further strengthening India’s special relations with Bhutan.” The visit, arranged at very short notice, went off smoothly and achieved the objective. PM Modi laid the foundation stone for the 600 MW Kholongchu HEP; announced that India will set up a national level digital library in Bhutan; and that there would be no embargo on export of essential items like rice, wheat, milk powder etc to Bhutan. By the time visit was over, Bhutan was confident that India’s policy towards Bhutan would continue. Subsequent developments have proved this assessment right. Meaningful progress has been achieved in the ongoing development projects, security cooperation and in the decisions announced during the visit.

Cooperation on mutual security concerns has been progressing satisfactorily in the interest of both the countries. Law enforcement agencies on both sides of the border have stepped up sharing of intelligence to keep a tab on terrorist and other anti-social activities along the border. Infrastructure for the promised National Digital Library of Bhutan has been put in place and steps are underway to make the Library operational soon. India-assisted development cooperation projects are proceeding well and Bhutan should be able to meet the targets for the 11th Plan which ends by June 2018. Continuing high level exchanges with Bhutan, Indian President Pranab Mukherjee paid a successful visit to Bhutan in November 2014.

Bhutan has shown keen interest in opening a Consulate in Guwahati. Recalling the historical ties of cooperation and friendship, Bhutan’s PM Tshering Tobgay said in the inaugural ceremony of Namami Brahmaputra festival in Assam in April 2017 that he has asked the Indian government to allow opening of Bhutan’s consulate in Guwahati. People on both sides of the border have had close contacts for several centuries and have economic and cultural exchanges on a daily basis, taking advantage of the open border. India has decided to accept Bhutan’s proposal to open the consulate. This would be welcome news to Bhutan.

Hydro power is the most important area of India-Bhutan bilateral economic cooperation. During the visit, PM Modi said hydropower cooperation with Bhutan “is a classic example of win-win cooperation and a model for the entire region.” Three India assisted HEPs – Chukha, Kurichu and Tala – with a total capacity of 1416 MW are presently operational. They account for 13 per cent of Bhutan’s GDP and a third of its exports and have contributed immensely to the development of Bhutan. India buys all the surplus power from these projects. At Bhutan’s request, in 2008, the then Indian PM Manmohan Singh , during his visit to Bhutan agreed to India working with Bhutan to set up additional 10,000 MW of generating capacity by 2020. This commitment was reiterated during PM Modi’s visit. This target of 2020 was unrealistic even when conceived, as injection of massive funds for these projects would have overheated the Bhutanese economy. Implementation would need to be stretched out and this is understood by both sides.

Presently, four projects are under execution. Of these, 720 MW Mangdechu is expected to be commissioned on schedule next year. The 1200 MW Punatsangchu 1 and 1020 MW Punatsangchu 2 have fallen way behind schedule, due mainly to geological surprises encountered during construction. Commencement of work on the Kholongchu project, for which PM Modi laid the foundation stone, has got delayed and needs to be speeded up. Unlike earlier projects that are inter-governmental, Kholongchu and three other projects are to be executed as JVs between Bhutan and Indian PSUs. Progress on the other three could build on the model developed for Kholongchu. The National transmission grid being implemented with Indian assistance is progressing well.

Bhutan does not favour entry of private companies in the energy sector. Reports on privatisation of Indian PSUs is causing some anxiety in the context of PSUs involvement in JVs, as Bhutan does not want to end up having to deal with private companies few years later. Reassurance on PSUs involved in JVs would help clear the air. Progress is necessary on the other projects identified as part of 10,000 MW program, even if implementation is taken up later.

Tariff for power supplied by Bhutan is considered low by some Bhutanese who see reports in Indian media about the high cost of power generated in India and the cost at which we export power to Bangladesh and Nepal. Tariff is fixed as per a mutually agreed formula based on cost of generation, agreed rate of return, increase in tariff in adjoining region of India, etc. Policymakers in Bhutan recognise the importance of an assured market at an agreed tariff and would not like to leave power trade to the vagaries of market fluctuations.

Bangladesh has also shown interest in setting up a major HEP in Bhutan, with the aim of importing power generated from the project. This will be possible only if power is allowed to be transmitted through India. India has responded positively to the proposal, making both Bhutan and Bangladesh happy.

Guidelines for cross border trade in electricity have been announced by India. Comments have been sought on draft guidelines for the same. Since it involves trade in power with our neighbors, it would be useful to consult them. Regulations should facilitate trade on commercial lines and provide for transmission of power across India by our BBIN partners. This would be in accordance with our desire for greater economic integration with neighbors.

Focus is required on some long pending bilateral issues/projects like problems faced by Indian traders, Integrated check post at the Jaigaon/Phuentshoeling border, indiscriminate and unscientific mining of Dolomite in Bhutan causing serious problems in Northern West Bengal etc.

In overall terms, India and Bhutan have worked together closely over the past three years to further their common interests. “Bhutan and India share a very special relationship that has stood the test of time,” PM Modi said in Bhutan. The positive developments since his visit testify to the same.

* VP Haran
Former Indian Ambassador to Bhutan