With the successful elections for the 47-members National Assembly on 24 March 2008, the Himalayan kingdom of Bhutan has emerged as a parliamentary democracy, paving way for an elected Prime Minister for the first time in the country's history. Democratic transition in Bhutan is a healthy sign of people's participation in governance.

India has hailed the first ever elections in Bhutan as a "great moment" in the history of Bhutan. Indeed, India-Bhutan relations are set to reach a new height of mutual cooperation, as India, the world largest democracy will find it more convenient in dealing with a democratic (though not multi-party) Bhutan. The elections will not only further boost bilateral relations but will also strengthen trade, military, and culture ties between the two countries. Bhutan's foreign policy is guided by India, which also contributes substantially to its development budget.

Traditionally, India and Bhutan have enjoyed a warm and cordial relationship. As the closest ally of India in South Asia, Bhutan always supported India in the SAARC forums and toed Indian line at the United Nations and International forums. It has endorsed New Delhi's position on a nuclear-weapon-free zone in South Asia, the Comprehensive Test Ban Treaty, the 1998 nuclear tests at Pokhran, and so on. Furthermore, it has acted to address India's security concerns. However, a major move was when Bhutan's army, in close cooperation with the Indian army, launched the "Operation All Clear" to flush out India's northeast militants form Bhutanese territories on 15 December 2003. This was in sharp contrast with the response of Bangladesh, which despite India's requests has simply denied the presence of anti-India insurgents on its territory. That can be regarded as the real dawn of the new Indo-Bhutan 'strategic partnership.'

From the security perspective, Bhutan has been worried about China's road building ventures on its immediate northern borders, and in November 2004, Bhutan reportedly lodged a formal protest to Beijing stating that some of China's road programme violated the Bhutan-China Agreement on Peace and Tranquility on Borders, 1998. China and Tibet were at the core of India's policy toward Bhutan. In 1949, when the treaty was signed, China had begun asserting control over Tibet. This was viewed with concern by India and Bhutan. India needed to ensure that Bhutan wouldn't fall under Chinese influence and Bhutan wanted India's protection. The Treaty of Friendship and Cooperation served the interests of both countries then.

Unlike Nepal, Bhutan has not been uneasy with India's influence over the country. Neither has it seen the need to use the China card to wring concessions out of India. A pro-China policy is not viable for Bhutan, as China is not in a position to sustain Bhutan economically in the long run. Supply lines into Bhutan favour India and not China. Over several decades, India's relations with Bhutan has been based on the foundation of shared interests and mutually beneficial cooperation has become an exemplary model of good-neighbourly relations. With perceptions of Chinese threat and China's geographical claim on Bhutan's territory, India made a significant pronouncement in 1958 when Prime Minister Nehru visited Bhutan. Nehru described Bhutan and India as "two sovereign independent countries linked together by historical ties."

On the economic front, India is Bhutan's largest donor, accounting for almost 80 per cent of its foreign assistance. Bhutan also enjoys complete free trade with India. Bhutan's import from India increased from US$47 million in 2002-03 to US$99.4 million, registering a growth of 112 per cent. Bilateral trade between the two countries has been on the upswing in recent years, with two-way trade valued at US$174million during 2004-05. In July 2006, India and Bhutan signed three agreements in the area of hydroelectricity power and trade, which was a sequel to the Inter-Governmental Agreement signed on 5 March 1996 on the setting up of the 1020 MW Tala Hydroelectric Project, which is the largest bilateral cooperation project undertaken by India in the field of hydropower in a foreign country. India recently provided an assistance package worth US$450 million to Thimpu for its 9th five-year plan ending 2007.

In the military front, India assured Bhutan of its continued support for a comprehensive modernization package for the Bhutanese army. It has also agreed to increase the military training of Bhutanese army officers in India, in addition to a joint military grid to patrol against the Indian militants.

On 8 February 2007, India and Bhutan signed the India-Bhutan Friendship Treaty, which updates the Treaty signed in Darjeeling on 8 August 1949, and sets forth the framework for bilateral relations. The updated Treaty reiterates that there shall be perpetual peace and friendship between India and Bhutan. It includes fresh provisions for consolidating and expanding economic cooperation for mutual and long-term benefit, and cooperation in the fields of culture, education, health, sports, and science and technology. The signing of the India-Bhutan Friendship Treaty signals the further deepening and strengthening of this unique and special relationship, and a democratic Bhutan will prove to be a trusted ally of India in pursuit of its Look East Policy.