Tough economic times or growing signals from India?

The recent doubling of LPG gas price and the tripling of Kerosene price in Bhutan due to the withdrawal of subsidies by the Government of India (GOI) will hit many household budgets hard, particularly the families that survive on a shoestring budget, which would constitute the majority of the Bhutanese population- both in urban and rural areas.

There are some people who have, for whatever reasons, rushed to explain that the withdrawal in the subsidies is just a normal process– as it is part of withdrawal of subsidies on LGP and Kerosene in India itself. However, there is more to this than just a ‘normal’ occurrence.

While it is true that subsidies are being reduced in India, it is also true that most of the Indian consumers continue to enjoy LPG subsidy of 9 cylinders a year and some on Kerosene as well. In fact, those in India holding a new identity card will, over a time, get direct cash transfers in their accounts as subsidy for buying gas cylinders.

Moreover, Bhutan with its 700,000 population compared to India’s 1.2 bn population is only a drop in India’s ocean of import bills, and Bhutan’s subsidized LPG and Kerosene amount is a small change for India.

The subsidies enjoyed by Bhutan on LGP and Kerosene have survived India’s wars with Pakistan and China in the past. This is the first time that the subsidies have been withdrawn since the establishment of firm diplomatic ties between the two nations more than 50 years ago.

Though some may point to India’s economic situation, it’s in fact improving and better than in the 1990’s. In the early 1990’s, India’s economic situation was so bad that it had had to sell its gold reserves to keep its economy afloat, and still then, India did not withdraw the subsidies to Bhutan.

It is significant to note that the withdrawal of subsidy by the Indian Oil Corporation to Bhutan was not made as part of any general withdrawal of subsidies in the sub-continent, but was done based on the advice of the Ministry of External Affairs (MEA) of India.

It may also not be a matter of coincidence that there has been a slate of articles in the Indian media on concerns over relations with Bhutan- emanating mainly from this crucial ministry for India.

The MEA of India which conducts India’s foreign policy is important for Bhutan as all grant or aid and even commercial projects like, hydropower have to be routed through it.

The withdrawal of LPG and Kerosene subsidies must, therefore, be seen in the larger context of what this agency has been doing- in terms of relations with Bhutan.

Though the 10th Five Year Plan (FYP) ended on June 30, 2013 – Bhutan has yet to receive the Nu 4.2 bn, an amount that is still due for the 10th FYP.  There are also no reports on any concrete commitments made on the 11th FYP, although the DPT assured us that the money will have to be finalized by the new government.

This comes in the backdrop of an unprecedented delay in delivery of excise refunds given only a few days back, but normally made in January and April in the previous years.

It is also significant to note that Bhutan has around 30,000 people without citizenship cards who have to travel via air to India using travel documents endorsed by Bhutan. The Indian immigration, off late, has refused to accept the travel documents, unless it has been stamped with a visa issued from the Indian Embassy in Thimphu.

Some may prefer to dismiss the change in Bhutan- India relations as a mere coincidence or choose to perceive it as an impact of a tight fiscal situation in India. However, for a small and vulnerable country that is still dependant on foreign assistance for our developmental activities and our self sufficiency aims, the signals from New Delhi are getting more ominous by the week.