India Bhutan Free Trade Agreement

Posted on September 23, 2021

The Government of India has been linked to the planned development of Bhutan since the launch of the first five-year plan in 1961 and remains our main development partner. Mutually beneficial economic relations have been at the heart of Bhutan-India relations. At present, India is not only Bhutan`s main development partner, but also its main trading partner. Trade with India has steadily increased over the years and India remains Bhutan`s largest trading partner. At present, the trade balance is very favourable to India. In 2015, the total value of imports from India was Nu. 53.74 billion, while the total value of exports to India (including electricity) was bare. 31.80 billion. There is a free trade regime between Bhutan and India.

The framework for trade relations is the Indian-Bhutan Friendship Treaty of 2007. The Trade, Commerce and Transit Agreement was first signed in 1972 and is renewed every ten years. It was last renewed in July 2006 and the meeting between Bhutan and India for the renewal of the Bhutan-India Agreement on Trade, Trade and Transit was held in New Delhi from 5 to 6 July 2016. Subsequently, the new Agreement on Trade, Commerce and Transit between India and the Royal Government of Bhutan was signed on 12 November 2016 by Smt. Nirmala Sitharaman, Minister of State for Trade and Industry, Government of India, and Lyonpo Lekey Dorji, Minister of Economic Affairs, Royal Government of Bhutan. It is valid for 10 years until 2026. The 1972 India-Bhutan Trade and Transit Agreement established a free trade regime between the two countries. The first trade and trade agreement between India and Bhutan was signed in 1972. Since then, the agreement has been renewed five times.

The last agreement was renewed in November 2016. The agreement also provides for the duty-free transit of Bhutanese exports to third countries. In 2018, bilateral trade reached Rs/Nu. 9228 Cr. Imports from India amounted to R/N. 6011 Cr. representing 84% of Bhutan`s total imports. Bhutan`s exports to India were Rs/Nu. 3217 cr (including electricity) and represent 78% of its total exports. In accordance with the bilateral trade agreement, the GOI reimburses excise duty on Bhutanese imports from India and this refund has been increased from Rs 291 for 2015 to Rs 400.11 for 2016. Bilateral trade is in Indian rupees, which are fully convertible into ngultrum at face value. Although Bhutan has an unfavorable trade balance with India, the balance of payments position with India ended in a surplus last year.

A few years ago, a lack of rupees led to a sharp densification of imports. However, the medium-term outlook is good, given that hydel capacity is expected to increase from the current 1600 MW to almost 5000 MW over the next five years. More than 90% of the electricity produced is exported to India. The bilateral meeting on trade and transit between India and the Houthi Country on trade-related issues is held regularly between the two sides. The last sales interview took place on 25 May 2015 in Thimphu. The Kingdom of Bhutan is considered a low-middle-income country open to trade. Over the past 30 years, the economy has continued to grow at a rate of 7% per year. Over the past decade, Bhutan has taken steps to modernize its economic structure and reduce poverty.

Hydropower is the main support of its economy and accounts for more than 12% of its GDP, or 40% of all exports, of which nearly 90% to India. The sector generates 45% of government revenues. Exports of minerals and mineral products account for almost half of total exports. . . . .

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