(The Indian Express has launched a new series of articles for UPSC aspirants written by seasoned writers and scholars on issues and concepts spanning History, Polity, International Relations, Art, Culture and Heritage, Environment, Geography, Science and Technology, and so on. Read and reflect with subject experts and boost your chance of cracking the much-coveted UPSC CSE. In the following article, K.M. Seethi, an expert on IR, analyses India’s Neighbourhood-First Policy in light of New Delhi’s deepening ties with Bhutan.) Recent high-level engagements between India and Bhutan, including Bhutanese Prime Minister Tshering Tobgay’s participation in the School of Ultimate Leadership (SOUL) conclave 2025, where he hailed Prime Minister Narendra Modi as his “elder brother” and “mentor”, highlight the deepening ties between the two nations and reflect positively on India’s Neighbourhood-First Policy (NFP). NFP has shaped New Delhi’s South Asia diplomacy for over a decade. The Union Budget 2025-26 reaffirms this commitment to its immediate neighbours. The Ministry of External Affairs (MEA) has been allocated ₹20,516 crore in the new budget, with ₹5,483 crore for aid to foreign nations. At a time when global geopolitics is changing and South Asia remains susceptible to a theatre of strategic rivalries, India’s budgetary commitments to its close neighbours reflect its foreign policy priorities. The core principle of NFP, first articulated during Prime Minister Modi’s tenure in 2014, has been to cultivate regional partnerships based on trust, development cooperation, and shared security interests, while strategically countering China’s growing influence. But How does India’s support for Bhutan align with its broader regional strategy in South Asia? What are the key sectors of collaboration between India and Bhutan under the Union Budget 2025-26? What are the potential areas where India is likely to expand its collaboration? Let’s explore. Financial assistance to Bhutan, part of a broader strategy Among India’s neighbours, Bhutan emerges as the largest beneficiary, receiving ₹2,150 crores, emphasising India’s commitment to its long-standing strategic partnership with the Himalayan nation. Aid to Maldives (₹600 crores), Myanmar (₹350 crores), and Sri Lanka (₹300 crores) has also increased, reflecting India’s growing regional focus. Meanwhile, aid to Bangladesh (₹120 crores) and Nepal (₹700 crores) remains unchanged, signalling a stable engagement. Afghanistan, despite political uncertainties, has been allocated ₹100 crores, reflecting a cautious yet sustained commitment to development projects. Perceptibly, Bhutan occupies a unique position in India’s regional strategy. Unlike other South Asian nations that have swung between India and China’s competing interests, Bhutan has remained India’s most committed ally. The 2025 budget allocation is not merely a continuation of traditional ties but a strategic manoeuvre to bolster India’s influence, particularly at a time when China is expanding its outreach in the Himalayas. The financial assistance to Bhutan is part of a broader strategy to ensure political stability, economic growth, and infrastructural advancement in a country that serves as a critical buffer between India and China. It also signals India's commitment to maintaining strategic primacy in South Asia, specifically when China is growing its presence in the region through various means such as through infrastructure projects in Nepal, port acquisitions in Sri Lanka, or financial investments in the Maldives. Additionally, by deepening ties with Bhutan, India is not only ensuring that its regional influence remains unchallenged but also promoting economic development and clean energy partnerships. Bhutan’s deepening diplomatic alignment with India in multilateral platforms like SAARC (South Asian Association for Regional Cooperation), BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation), and BBIN (Bangladesh Bhutan India Nepal) emphasises India’s ability to build regional coalitions that counterbalance China’s Belt and Road Initiative (BRI). Bhutan’s geopolitical significance Located between two of Asia’s largest powers, Bhutan also holds disproportionate geopolitical weight in South Asian affairs. Its location just north of India’s Siliguri Corridor, the narrow land link connecting the northeastern states to the rest of the country, makes it a crucial buffer against China’s territorial ambitions. The 2017 Doklam standoff, triggered by China’s attempts to expand its footprint in the disputed plateau, served as a sharp reminder of Bhutan’s role in India’s security matrix. Since then, Beijing has continued to pressure Bhutan into settling border disputes, while simultaneously offering economic incentives to draw it closer. India’s budgetary commitment to Bhutan in 2025-26 is therefore not just about economic aid — it is a clear geopolitical signal. By ensuring Bhutan’s economic and strategic autonomy, India effectively blocks China from gaining a foothold in a region of immense strategic importance. The continued support also reinforces Bhutan’s sovereignty, reducing the likelihood of it succumbing to Chinese economic baits, as seen in Nepal and Sri Lanka. Strategic partnership India and Bhutan share a deep-rooted partnership, strengthened by diplomatic, economic, and security cooperation. The India-Bhutan Trade, Commerce, and Transit Agreement, first signed in 1972 and last revised in 2016, ensures a free trade regime, making India Bhutan’s largest economic partner. Bilateral trade has tripled in the past decade, rising from $484 million (2014-15) to $1.6 billion (2022-23), with India accounting for 73% of Bhutan’s total trade. The allocation of ₹2,150 crore in 2025 continues to strengthen these economic ties, reinforcing Bhutan’s dependence on India for trade, investment, and infrastructural development. The Modi government has placed significant emphasis on fortifying this partnership. During PM Modi’s visit to Bhutan in 2019, major projects were launched, including the Mangdechhu Hydropower Project, the ISRO Ground Earth Station, and the introduction of the RuPay Card system. In 2022 and 2023, His Majesty the King of Bhutan’s visits to India further reinforced cooperation in hydropower, digital connectivity, and infrastructure development. The March 2024 visit of Bhutanese Prime Minister underlined the deepening engagement, with renewed discussions on economic assistance, trade corridors, and regional security. Hydropower cooperation Moreover, Bhutan’s economy is closely tied to India through hydropower exports, which constitute 40% of Bhutan’s national revenue and 25% of its GDP. India has been the primary financier and developer of Bhutan’s hydropower sector, ensuring its economic sustainability while securing low-cost renewable energy for India. The 2025 budget continues to prioritise hydropower investments, underpinning Bhutan’s position as a clean energy hub for the region. Over the years, India has played a crucial role in developing Bhutan’s major hydropower projects, including Tala (1020 MW), Chukha (336 MW), Kurichhu (60 MW), and Mangdechhu (720 MW). The upcoming Punatsangchhu I & II (2,200 MW) and Kholongchhu (600 MW) projects will further expand Bhutan’s electricity exports to India, which were valued at ₹2,448 crore in 2022. This mutually beneficial arrangement not only ensures Bhutan’s economic resilience but also strengthens India’s energy security at a time when the country is transitioning towards renewable energy sources. India-Bhutan ties, a model for regional cooperation Beyond hydropower, India continues to be Bhutan’s primary partner in infrastructure development, with the Union Budget 2025 allocating funds for border roads, trade facilitation centres, and modern checkpoints to improve cross-border trade. India’s efforts to integrate Bhutan into regional economic frameworks, such as the BBIN (Bangladesh-Bhutan-India-Nepal) corridor, will allow Bhutanese exporters to access Indian ports more efficiently. In the digital sphere, India is supporting Bhutan’s fintech infrastructure, facilitating the adoption of RuPay and UPI payment systems to ensure substantial cross-border transactions. Meanwhile, India’s investments in transportation, rail connectivity, and aviation are ensuring Bhutan remains economically tied to India rather than seeking alternative trade routes via China. In the coming years, India’s focus will likely expand to include newer areas of collaboration, particularly in climate resilience, digital economy, and green hydrogen initiatives. Bhutan’s ambition to become a leader in renewable energy production fits well with India’s sustainability goals, paving the way for future cross-border energy projects. Thus the Union Budget 2025-26 is not just an economic commitment — it is a strategic declaration that Bhutan remains a mainstay of India’s regional diplomacy. At a time when China is pushing deeper into South Asia, India’s firm support for Bhutan ensures that this Himalayan kingdom remains a trusted partner, a secure buffer, and an economic ally. If current trends continue, the India-Bhutan relationship will not only prosper but also serve as a model for regional cooperation, demonstrating that shared prosperity and strategic foresight can define the future of South Asia. Post Read Questions What role does Bhutan play as a buffer state between India and China, and how does India’s financial assistance reinforce this position? What role does hydropower play in the India-Bhutan economic partnership? In what ways does India’s investment in Bhutan’s renewable energy ambitions contribute to its own sustainability goals? What are the geopolitical implications of India’s continued strategic support to Bhutan in light of China’s expanding influence in the Himalayas? How can India and Bhutan’s cooperation in climate resilience set a precedent for regional partnerships in South Asia? (K.M. Seethi is the Director of Inter University Centre for Social Science Research and Extension (IUCSSRE), Mahatma Gandhi University (MGU), Kerala, and former Senior Professor of International Relations at the same university.) Share your thoughts and ideas on UPSC Special articles with ashiya.parveen@indianexpress.com. Subscribe to our UPSC newsletter and stay updated with the news cues from the past week. Stay updated with the latest UPSC articles by joining our Telegram channel – IndianExpress UPSC Hub, and follow us on Instagram and X.
