Economic and Development Cooperation between India and Bhutan since the End of the Cold War

Abstract

Since the end of the Cold War, India–Bhutan relations have evolved into one of South Asia’s most stable and enduring development partnerships, grounded primarily in hydropower-led economic interdependence and sustained development assistance. Over the past three decades, this bilateral cooperation has expanded beyond traditional aid frameworks to encompass multi-sectoral engagement in areas such as connectivity, trade facilitation, human resource development and emerging cross-border growth corridors. This paper examines the transformation of India–Bhutan economic and development cooperation from the early 1990s to the mid-2020s, highlighting how foundational pillars such as hydropower cooperation and plan-based financial assistance have been progressively complemented by new strategic priorities. Special attention is given to initiatives promoting regional connectivity, investment partnerships and sustainable urban development, particularly Bhutan’s ambitious Gelephu Mindfulness City project, which reflects a shift toward diversified economic planning and border-region prosperity. Employing a qualitative historical–institutional methodology and systematic review of policy documents, official statements and project-level data, the study maps major agreements, flagship hydropower ventures and structured financial support aligned with Bhutan’s Five Year Plans. It also critically examines persistent challenges, including project delays, environmental concerns associated with large hydropower infrastructure and the evolving dynamics of grant–loan financing. The paper argues that India–Bhutan cooperation has gradually transitioned from a predominantly project-based financing model to a more comprehensive “development ecosystem” approach. This emerging framework integrates energy trade with infrastructure development, private sector participation and community-level initiatives, thereby broadening the scope and impact of bilateral engagement. Overall, the study underscores how economic cooperation between India and Bhutan has adapted to changing regional and global contexts while continuing to reinforce mutual interdependence, sustainable development goals and long-term strategic partnership.