India – Bhutan relations

What is the issue?

India has an enormous opportunity to transform from being Bhutan’s largest developmental partner to its largest investor and business partner.

What is the changing nature of relationship?

• The Mangdechhu hydroelectric project is a 720MW run-of-river power plant being built in central Bhutan.
• It is one of the 10 hydroelectric projects planned by Bhutan to generate 10,000MW hydropower by 2020 with support from India.
• However, both sides have faced issues in getting a favourable tariff for the project, which is set to start production in January 2019.
• Bhutanese and Indian negotiators have had seven rounds of meetings so far, but have not been able to agree on a mutual tariff rate.
• However, Bhutan’s tariff rate is below what new hydropower projects in India are charging and hence India has to make a final decision in this regard.
• Bhutan also wants India to start the construction of the 2,560 MW Sunkosh Reservoir project and the 2,640 MW Kuri Gongri reservoir project along with India.
• Both these projects are not only mentioned as priority projects by Bhutan but also as one of its key economic priorities.
• On the other hand, the process from the Indian side is getting slow due to the financing concerns for the projects.
• Despite that, these two mega projects will be part of a clean and reliable stabilising power source for India and contribute to its renewable energy targets.
• These projects show that Bhutan wants to convert the relationship with India from the traditional donor and aid recipient to that of investment and trade.

What are the reasons?

• While hydro projects built with India will provide the bulk of the revenue for the Bhutan government, the projects by themselves cannot generate many jobs for the Bhutanese youth.
• This is especially so because Bhutan has the highest proportion of youth to the total population in South Asia.
• The hydro projects, in the long run, will also not be enough to bridge the ever-widening trade gap or current account deficit with India.
• Hence, Bhutan made a long-standing national objective of achieving economic self-sufficiency.
• Bhutan have also made an in-principle decision to not seek more aid from India for its 12th plan period than it did in the 11th plan.
• Not only from India, Bhutan is also sharply reducing its overall grant component.

What will be the recourse?

• This development presents an enormous opportunity for India graduate from being Bhutan’s largest developmental partner to Bhutan’s largest investor and business partner.
• Bhutan sees India as the largest potential source of investment for its economic diversification programmes.
• India also serve as a largest market for their products and services that come out of this diversification.
• Bhutan is also on the path of demanding an exemption from India’s Central GST in the future.
• This is because CGST is affecting the export of Bhutanese goods to India, both in terms of price and procedures at the border.
• On the other hand, Bhutan is willing to pay the state-level GST.
• Thus the relationship of India with Bhutan should go deeper than its engagement in the hydropower sector into other dimensions of mutual interest.
• As, Bhutan remains India’s closest and most reliable friend, it is now time to take this relationship to the next level.  

Source: The Indian Express