The Rupee Problem and the Indian Economy

As the Rupee crisis rages on in Bhutan, the only possible medium term solution is to get some help from the Indian government.
The key solutions are to increase the rupee borrowings from Rs 3 bn to Rs 10 bn from the Government of India (GoI), and to allow Bhutan to swap Ngultrum for Indian Rupee or USD from the USD 2bn SAARC currency swap arrangement with 2% interest.
The latest development on this front is that, a two member Bhutanese government delegation travelled to New Delhi to request for an increase in the Rupee borrowing cap to Rs 10 bn, but they were asked to provide more information to justify the need for the hike.
This shows that either inadequate homework was done on our part, or that there was unclear communication between the two governments. If we are willing to pull out all stops for the GNH conference in New York, then more effort should have been applied in getting our act together in asking New Delhi for some badly needed help.
Another related problem coming from India is a dramatic reduction in money being made available for the hydropower projects. Here too, most of our government agencies were clueless on this development that was reported in the Indian media. This will considerably delay the ongoing Punatsangchu I and II and Mangdechu hydropower projects. It will affect plans to have the 10,000 MW hydropower projects up and running way beyond 2020, if our government does not do something about it.
For a government so dependent on the largesse of India, many of our policy makers seem to have little or no idea of the developments in India that can have considerable impact on Bhutan. The economic situation in India can be summed up in the words of the Indian Finance Minister, Pranabh Mukherjee, who said the Indian government is set to adopt austerity measures to bridge its fiscal deficit gap.
The Rupee has also turned out to be Asia’s worst performing currency, losing 20% of its value to the USD in 2011 due to weak economic growth in India. So when the Ngultrum has lost 20% to the Rupee, which in effect means that, the Nu has lost 40% in value to the USD.
The economic ground realities in India may not only have its impact on the ongoing Rupee crisis but also on the hydro projects, and the 11th FYP.
Despite India’s weakened growth, Bhutan can still get the necessary assistance since our needs are miniscule as compared to that of the huge Indian economy and budget. However, for that to happen, the government has to be aware of the ground realities in India, go through the due diligence, and also keep the channels of communication open.
What has not helped is the fact that Bhutan’s does not have a serving Foreign Minister, with the Prime Minister doubling up on both the roles. On the positive side significant progress has been achieved on the multilateral front. However, even though the PM is a known workaholic with a punishing schedule both offices may suffer at times due to their taxing nature.
Though the Indo-Bhutan relations peaked in 2008 with 10,000 MW agreement and the generous 10th FYP funds, however, there have been no visible efforts made by the Bhutanese government to further the momentum achieved then.
Bhutan as a small state has to be very careful and proficient in its practice of diplomacy and statecraft. While the government must be recognized for raising Bhutan’s international profile by making new friends, we should also not forget our old friends and how to deal with them.
An example is the Chukha electricity tariff hike due since 2009, but stuck in some bureaucratic files and procedures in New Delhi. In the past, no such problems existed as whenever His Majesty the Fourth King visited India, there would be a generous hike in tariff rates even before it was due, indicating a lot of homework was done behind the scenes. If the new government had used similar political resolve and statecraft then Bhutan since 2009 would have been richer by a few billion Rupees.
Bhutan is an important country for India due to our shared geo-strategic and security interests, especially with an increasingly assertive northern giant. Bhutan is also seen by India as an important foreign policy ally, and now an energy partner. We may also be the only country in South Asia, where anti-Indian sentiments are unheard of. So there is a lot going for Bhutan, but if the government is not careful and proactive, we may slip down the priority list of India, and to our own detriment.
There is also a sore need for an Indo-Bhutan think tank that can help the country get sufficient information and analysis on our biggest developmental and economic partner.


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  1. A big lesson for the country. This incident tells us that India cannot look after us forever because they have to look after their own people. They can only be a economic partner. This makes sense to send the bhutanese delegation back home. How can governement send two-member delegation (that also without doing a home work) to solve Rs crisis when more than 15 member delegation was participating in GNH conference. My goodness… i cannot believe this.

  2. honest_bhutan

    Ngultrum has lost its 20% to rupee…..i dont believe this…is it official or just your take through some experiences….?

  3. It is a lesson for the Bhutanese and this crises has helped us all to reflect and think deep at the right time. Just imagine, what would be the situation if this crisis happens after two to three years! How long are we going to depend on India right from basic necessity like salt to vegetable?

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