Image credit: Talakha Goemba by Nitasha Kaul

Written by Nitasha Kaul and Sangay Khandu.

Inter-state rivalries between bigger states like India and China or India and Pakistan are often the focus of much discussion when it comes to South Asia. In contrast to this, the organic and evolving relations between smaller states are much less commented upon.

Bhutan and Bangladesh were recognised as sovereign states internationally and by the UN in the 1970s, but a much longer history connects the regions. For example, several religious sites in Bhutan tell the story of visits by many great Bangla Buddhist masters from centuries ago.* And predominantly Buddhist Bhutan was the first country in the world to recognise the sovereignty of majority Muslim Bangladesh after it came into existence following the liberation war of 1971.

Bhutan and Bangladesh are territorially small nation-states, composed of a populace that has a distinctive sense of national pride. When it comes to the pursuit of their national interests and the contours of their domestic politics, both have to contend with the reality of existing within the strategic environment of a powerful neighbour like India. The latter plays a crucial role when it comes to forging bonds of cooperation between the two small states, and these bonds continue to evolve, despite the many differences in terms of population, political culture, economic base and terrain.

Bangladesh, with Islam as the state religion, is the eighth-most populous state in the world. With a coastline along the Indian Ocean in the south, it is the world’s second-largest exporter of clothing. Its industrial development has translated into a growing need for energy. By contrast, Bhutan, at one third the size of Bangladesh, and with a population of under a million, is landlocked and fed by abundant Himalayan water resources, making the export of hydropower its main source of income. Bhutanese politics, even after the country’s unconventional transition to democracy in 2008, remains largely non-confrontational, whereas the landscape of Bangladeshi politics is marked by instances of political violence, including (especially) during elections.

Bhutan and Bangladesh, as small states, negotiate a complex dance of international moves hinging on friendship and national interests

The two countries do not directly share a border, since a 30 km-wide strip of Indian territory separates them. One might even say, figuratively, that Bhutan’s access to the Indian Ocean is through an Indian ocean of influences. Bangladesh assists Bhutan in several ways, and a particularly important area of cooperation has been in the field of medical education. Not only does Bhutan annually receive scholarships from Bangladesh, but Bhutan’s current Prime Minister, Dr Lotay Tshering (in office since 2018), is himself a doctor who trained in Bangladesh.

Both countries historically share membership in several multilateral organisations such as the Non-Aligned Movement (NAM) and the Colombo Plan, which Bhutan joined in 1962 and Bangladesh in 1972. Partly as a consequence of the ‘Indian guidance on external relations’ clause in Bhutan’s Friendship Treaty with India – a clause which was finally removed after the treaty was renegotiated in 2007 – the country has few diplomatic ties. However, Bhutan opened diplomatic relations with Bangladesh in 1973, and Bangladesh is still one of only three countries with resident embassies in Bhutan (the other two being India and Kuwait).

In 1985, both Bhutan and Bangladesh became founding members of the South Asian Association of Regional Cooperation (SAARC), and Paro and Dhaka were connected by air in 1986 when Bhutan’s national airline Druk Air started scheduled flights along the route. This connectedness was both symbolic and functional, being significant in shortening the 659 km of road between the two capitals of Dhaka and Thimphu.

Following its democratic transition in 2008, Bhutan has continued to craft a suitable foreign policy for itself, which includes a focus on building relations with small neighbours/states. In 2017, the Bangladeshi Prime Minister Sheikh Hasina unveiled a foundation stone plaque for construction of a chancery in Thimphu.

While India’s historic goodwill in Bangladesh and efforts to cultivate ties in Bhutan continue to form part of the historical friendship narrative, there are newer variables as well. The most significant policy areas relate to hydropower, trade, and the Bangladesh, Bhutan, India, Nepal (BBIN) Initiative. BBIN is a sub-regional association formed by members of the larger SAARC regional association in order to strengthen integration.

Bangladesh’s improving socioeconomic outlook and its growing energy requirements present a unique avenue for cooperation with Bhutan, which enjoys an energy surplus and has large untapped hydropower potential. A bilateral Free Trade Agreement (FTA) was signed between Bhutan and Bangladesh in 2009, with an emphasis on the export of hydropower from Bhutan to Bangladesh. This was discussed again during the Bhutanese Prime Minister’s visit to Dhaka in 2019.

The SAARC Framework Agreement for Energy Cooperation has been another platform where the potential for closer sub-regional energy ties continues to be discussed, albeit progress here is slow. Such a framework would theoretically help Bangladesh to import energy from Bhutan. However, as the two countries do not share a border, the need for energy transmission through India means the latter plays a crucial role in progressing this hydropower cooperation.

Although there is alignment on energy interests between Bhutan and Bangladesh since 2006 China has been the largest investor in Bangladesh, primarily in the energy sector. This additional China factor, coupled with warmer relations between Bangladesh and India, presents Bhutan with an opportunity to shore up its political capital in Dhaka and make progress on energy exports. Likewise, joint Bangladeshi and Indian investment in the hydropower sector in Bhutan, already supported by a Memorandum of Understanding (MoU) for a project in Lhuentse in Bhutan, will be an important reference point in the years ahead.

Bhutan and Bangladesh entered into a bilateral agreement granting one another Most Favoured Nation (MFN) preferential treatment in trade in 1980, which was followed by several MoUs. However, a significant challenge in operationalising the agreement was the question of transit through Indian territory. Trading was only able to begin several years after Bhutan and Bangladesh had each signed agreements with India in 1983 and 1984, respectively.

The overall trade value between the two countries was recorded at USD 50 million in 2017, and it reached more than USD 95 million (6,402.33 million ngultrum) in 2018, the highest level to date (in addition to informal trade estimated at around USD 1 million). After India, Bangladesh is Bhutan’s second-largest trading partner and the only country Bhutan has a trade surplus with. Currency incentives play a role in Bhutan-India trade, since the Bhutanese currency (the ngultrum) is pegged to the Indian rupee. Bangladesh’s top exports to Bhutan are slag and other wastes from the manufacture of iron for industry, followed by fruit juices and sweet biscuits and garments. Bhutan’s top exports to Bangladesh are boulders, ferro alloys, gravels and cardamom.

Overland trade poses periodic problems for Bhutan due to disturbances in the Indian border regions; political and trade disputes mean that Bhutanese stone and boulder lorries are often stuck in transit. One of the MoUs signed when the Bhutanese Prime Minister visited Dhaka in April 2019 related to cooperation in using inland waterways for bilateral trade and transit of cargoes between the two countries. In a significant step, the first consignment from Bhutan to Bangladesh using inland waterways was flagged off in July 2019 from Dhubri port in Assam, bound for Narayanganj port in Dhaka along the Brahmaputra River.

Not only does the growth of riverine trade avenues lead to advantages such as decreasing costs and reductions in time, it also signals increasing sub-regional cooperation of the kind envisaged in the BBIN Initiative. For example, a Motor Vehicle Agreement (BBIN-MVA) was signed in Thimphu in 2015 to facilitate the on-going South Asian Sub-regional Economic Cooperation (SASEC) effort by the governments to integrate and connect the region.

Fostering these linkages in trade, market access, transport and infrastructure connectivity is key to India’s neighbourhood strategy. However, Bhutan’s law-makers and public foresee significant environmental problems caused by increased and unrestricted traffic as a result of the agreement. The BBIN, therefore, failed to find support for the project in the Bhutanese parliament due to uncertainties about its impact on Bhutan’s fragile ecosystem. In addition, there were concerns over the absorptive capacity of infrastructure development, given Bhutan’s asymmetry in relation to the other BBIN members.

Similar concerns with regard to BBIN were expressed during the tenure of the previous government in Bhutan led by the People’s Democratic Party (PDP), which was perceived to be relatively pro-Indian and had come to power during the 2013 elections (which were marred by accusations of manipulation by India). The PDP lost the 2018 elections and was replaced in government by the Druk Nyamrup Tshogpa (DNT) party. The DNT may decide to revive the BBIN, but not without conditions. Within the framework of Bhutan-India friendship, this is especially likely, given India’s recent acquiescence to Bhutan’s change in its tourism policy requiring the levy of a Sustainable Development Fee (SDF), which mainly affects Indian (and Bangladeshi) tourists visiting Bhutan.

Bhutan’s ‘high value, low volume’ tourism policy requires that tourists pay between USD 250 (peak season) and USD 200 (non-peak season) per person per night to visit Bhutan. After hydropower, this is the second-highest source of revenue and foreign currency for the Royal Government of Bhutan. Nationals from Bangladesh, India and the Maldives have been exempt from paying this levy in the past, along with other regulatory provisions such as obtaining a visa in advance.

Although the highest number of affected tourists will be Indian, 10,536 tourists from Bangladesh visited Bhutan in 2017, an increase of 31 per cent in 2016. The change to Bhutanese law requires a levy of roughly USD 17 per person per night for nationals from Bangladesh, India and the Maldives to visit Bhutan; hence, it still distinguishes them from tourists from other parts of the world. This change has not met with any retaliatory action by Bhutan’s neighbours.

Given China’s expansion in the energy sector in Bangladesh, it is conceivable that India would prefer Bhutan to have a role in addressing Bangladesh’s energy deficit. If balanced against ecological concerns and on well-negotiated terms, the development of Bhutan’s hydropower sector and its export of energy beyond India directly to Bangladesh is certainly in Bhutan’s interests. Both Bangladesh and India (as well as Nepal) would prefer to have Bhutan on board with the BBIN, and the change to the SDF levy is expected to address Bhutan’s concerns about its overburdened ecology in the face of unrestricted tourism and heavy vehicular traffic.

Nonetheless, both Bhutan’s relative closeness to India (rather than China, because of the situation in Tibet), and Bangladesh’s relative closeness to India (because of its history with Pakistan), are mitigated by these small states’ caution vis-à-vis India’s suffocating embrace and their ability to leverage the economic lure of China. The result is a diplomatic merry-go-round where Bhutan and Bangladesh, as small states, negotiate a complex dance of international moves hinging on friendship and national interests.

Nitasha Kaul is an Associate Professor in Politics and International Relations at the Centre for the Study of Democracy (CSD) at the University of Westminster in London. Over the last two decades, she has published and spoken on themes relating to identity, democracy, political economy, feminist and postcolonial critiques, Kashmir, and Bhutan. A continuing strand of her research since 2006 has been on different aspects of Bhutan’s history and politics; she recently received an AHRC (Arts and humanities Research Council, UK) award for her two-year collaborative project on Bhutan and biodemocracy that links politics and ecology. She tweets @NitashaKaul

Sangay Khandu is a former National Council parliamentarian from Bhutan, having represented Gasa for two terms between 2008 and 2018. He is also the co-founder of the Center for Local Governance and Research (CLG) and a Visiting Researcher at the Centre for the Study of Democracy (CSD) at the University of Westminster in London. He tweets @sangaykhandu

*Such as the influence of Atiśa on Buddhism, for instance, or the great Bangla Buddhist master Vanaratna (known in Bhutan as Drubthob Ngagi Rinchen), who is said to have split open a rock to liberate his mother – who was reborn as a creature suffering inside it – in a place called ‘Do Moendrel’ in Punakha district in western Bhutan.

**Articles published by The Asia Dialogue represent the views of the author(s) and not necessarily those of The Asia Dialogue or affiliated institutions.


  1. This is a beautifully crafted write up … We have hardly any work regarding the relations between small states … Thanks a lot

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