Bhutan, like other neighbours, watched with interest and some anxiety as National Democratic Alliance (NDA) swept the polls in May 2014. Indian Prime Minister (PM) Narendra Modi was an enigma to them. They were unsure of what the Modi government's foreign policy would be. Bhutan was no exception. The invitation to South Asian leaders for the swearing in ceremony was a reassuring message from the new government that it attaches the highest priority to strengthening relations with neighbours. Bhutanese PM Tshering Tobgay's visit to Delhi and his meeting with PM Modi reassured him about the continuity of India’s policy towards Bhutan.

To give practical effect to the ‘neighborhood first’ policy, Modi chose Bhutan for his first foreign visit as prime minister, less than a month after taking office. On the eve of the visit, PM Modi said he was looking forward to his "first ever visit to Bhutan and to nurturing and further strengthening India’s special relations with Bhutan. The visit, arranged at very short notice, went off smoothly and achieved the objective. PM Modi laid the foundation stone for the 600 MW Kholongchu HEP; announced that India would set up a national level digital library in Bhutan; and that there would be no embargo on export of essential items like rice, wheat, milk powder etc to Bhutan. By the time visit was over, Bhutan was confident that India’s policy towards Bhutan would continue. Subsequent developments have proved this assessment right. Meaningful progress has been achieved in the ongoing development projects, security cooperation and in the decisions announced during the visit.

Cooperation on mutual security concerns has been progressing satisfactorily in the interest of both the countries. Law enforcement agencies on both sides of the border have stepped up sharing of intelligence to keep a tab on terrorist and other anti-social activities along the border. Infrastructure for the promised National Digital Library of Bhutan has been put in place and steps are underway to make the library operational soon. India-assisted development cooperation projects are proceeding well and Bhutan should be able to meet the targets for the 11th Plan which ends by June 2018. Continuing high-level exchanges with Bhutan, Indian President Pranab Mukherjee paid a successful visit to Bhutan in November 2014.

Bhutan has shown keen interest in opening a consulate in Guwahati. Recalling the historical ties of cooperation and friendship, Bhutan's PM Tshering Tobgay said in the inaugural ceremony of Namami Brahmaputra festival in Assam in April 2017 that he has asked the Indian government to allow opening of Bhutan's consulate in Guwahati. People on both sides of the border have had close contacts for several centuries and have economic and cultural exchanges on a daily basis, taking advantage of the open border. India has decided to accept Bhutan’s proposal to open the consulate. This would be welcome news to Bhutan.

Hydro power is the most important area of India-Bhutan bilateral economic cooperation. During his visit, PM Modi said hydropower cooperation with Bhutan "is a classic example of win-win cooperation and a model for the entire region." Three India assisted HEPs – Chukha, Kurichu and Tala – with a total capacity of 1416 MW are presently operational. They account for 13 per cent of Bhutan’s GDP and a third of its exports and have contributed immensely to Bhutan's development. India buys all the surplus power from these projects. At Bhutan’s request, in 2008, the then Indian PM Manmohan Singh during his visit to Bhutan agreed to India working with Bhutan to set up additional 10,000 MW of generating capacity by 2020. This commitment was reiterated during PM Modi’s visit. This target of 2020 was unrealistic even when conceived, as injection of massive funds for these projects would have overheated the Bhutanese economy. Implementation would need to be stretched out and this is understood by both sides.

Presently, four projects are under execution. Of these, the 720 MW Mangdechu is expected to be commissioned on schedule in 2018. The 1200 MW Punatsangchu 1 and 1020 MW Punatsangchu 2 have fallen way behind schedule, due mainly to geological surprises encountered during construction. Commencement of work on the Kholongchu project, for which PM Modi laid the foundation stone, has got delayed and needs to be sped up. Unlike earlier projects that are inter-governmental, Kholongchu and three other projects are to be executed as joint ventures (JVs) between Bhutan and Indian public sector undertakings (PSUs). Progress on the other three could build on the model developed for Kholongchu. The national transmission grid being implemented with Indian assistance is progressing well.

Bhutan does not favour entry of private companies in the energy sector. Reports on privatisation of Indian PSUs is causing some anxiety in the context of PSU involvement in JVs, as Bhutan does not want to end up having to deal with private companies a few years later. Reassurance regarding PSUs involved in JVs would help clear the air. Progress is necessary on the other projects identified as part of the 10,000 MW programme, even if implementation is taken up later. 

Tariff for power supplied by Bhutan is considered low by some Bhutanese who see reports in Indian media about the high cost of power generated in India and the cost at which India exports power to Bangladesh and Nepal. Tariff is fixed as per a mutually agreed formula based on cost of generation, agreed rate of return, increase in tariff in adjoining region of India, etc. Policymakers in Bhutan recognise the importance of an assured market at an agreed tariff and would not like to leave power trade to the vagaries of market fluctuations.

Bangladesh has also shown interest in setting up a major HEP in Bhutan, with the aim of importing power generated from the project. This will be possible only if power is allowed to be transmitted through India. India has responded positively to the proposal, making both Bhutan and Bangladesh happy.

India has announced draft guidelines for cross-border trade in electricity. Since it involves trade in power with India's neighbours, it would be useful to consult them. Regulations should facilitate trade on commercial lines and provide for transmission of power across India by Bangladesh, Bhutan and Nepal, its BBIN Initiative partners. This would be in accordance with India's desire for greater economic integration with its neighbours.

Focus is required on some long pending bilateral issues/projects like problems faced by Indian traders, the integrated check post at the Jaigaon/Phuentshoeling border, indiscriminate and unscientific mining of Dolomite in Bhutan causing serious problems in northern West Bengal, etc.

In overall terms, India and Bhutan have worked together closely over the past three years to further their common interests. "Bhutan and India share a very special relationship that has stood the test of time," PM Modi said in Bhutan. The positive developments since his visit testify to his statement.