Trade and Relations

There can be no doubt that one of the strongest diplomatic ties in the world are between Bhutan and India.

The relationship has both evolved and grown over a period of time to the point that even our authors exchange notes during the Mountain Echoes festival.

Within this larger framework of close ties, an increasingly important component of the relationship is trade as Bhutan slowly but surely graduates from an aid-dependent country to a country that wants to trade and become self-sufficient.

In that respect, both countries not only share a long standing free trade agreement, but India has always invited Bhutanese business people, farmers and others to take part in its large market.

India, including this current government, has also been sensitive to Bhutan’s concerns as a much smaller country and tourism is a good example.

Every year there are an increasingly large number of Bhutanese either trading with India or through it and it will only go up as Bhutan’s economy and population expands.

So, for an increasing number of Bhutanese from farmers to business people to young entrepreneurs, their first real contact with India will be via trade and business.

In large part due to a combination of the pandemic and the GST system being rolled out in India, a lot of the informal trade going on earlier has now become formalized and with that comes onerous requirements for documents and processes.

The current Indian Ambassador and MEA has been very proactive in resolving issues, but both countries will need to look at longer term solutions. It may not be feasible for a subsistence farmer to fill up WTO level of paper work to export his or her truck of potatoes.

The proliferation of regulations and rules can also give rise to rent seeking behavior at the border which is increasingly coming to the fore and which has the potential to impact ties if unchecked.

Given the large size of India, its gigantic system may sometimes fail to appreciate how even the smallest changes in rules or conditions can impact Bhutan in a major way.

We cannot depend on or bother the MEA to come to the rescue each time for every issue.

There needs to be thorough dialogue and understanding not only between Bhutan and India on trade barriers and issues but also between Bhutan and states in India.

As observers on both sides say the strong ties between the two countries is due to both sides not taking the relationship for granted, and doing the necessary hard work behind the scenes.

This is one such moment where a lot of work and understanding will be required.

“Every man lives by exchanging.”
Adam Smith

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