India, Bhutan review development partnership; sign Rs 4,000-crore LoC agreement
The Foreign Secretaries of India and Bhutan co-chaired the 5th India-Bhutan Development Cooperation Talks in Thimphu, reviewing the implementation of India-assisted development projects under Bhutan's 13th Five Year Plan
A concessional Line of Credit agreement worth INR/Nu. 40 billion (Rs 4,000 crore) was signed between the Export-Import (Exim) Bank of India and Bhutan's Ministry of Finance
A Memorandum of Understanding on health education and research cooperation was signed between AIIMS (India) and the Khesar Gyalpo University of Medical Sciences of Bhutan (KGUMSB)
45 electric vehicles were handed over to the Royal Government of Bhutan as part of ongoing development assistance
The two Foreign Secretaries virtually inaugurated the Thimphu Ecological Park and Olakha Park, built under India's Project Tied Assistance (PTA) programme
The talks reviewed progress on 71 medium-to-large Project Tied Assistance projects across sectors including connectivity, urban infrastructure, skill development, education, healthcare, cultural heritage conservation, and renewable energy
India-Bhutan Treaty of Friendship and Cooperation
Bilateral relations between India and Bhutan rest on the Treaty of Friendship and Cooperation, first signed in 1949 and comprehensively revised in February 2007. The 2007 revision modernised the relationship by removing the earlier requirement that Bhutan seek India's guidance in conducting its foreign policy, replacing it with a clause on cooperation "in matters relating to their national interests," reflecting Bhutan's fuller sovereign standing while preserving close strategic ties.
Key Details
- Original treaty: 1949, provided for "perpetual peace and friendship"
- Revised treaty: signed February 2007
- The revised treaty removed India's role in guiding Bhutan's foreign policy and no longer requires Bhutan to obtain India's consent for arms imports
- Bhutan remains landlocked; all of its third-country trade transits through India, underlining the strategic depth of the relationship
- Bhutan is a key pillar of India's "Neighbourhood First" policy
The Development Cooperation Talks and the fresh Line of Credit are the latest instance of the sustained development partnership envisaged and enabled by this treaty framework, distinct from India's more security- and trade-focused engagement with other neighbours.
Lines of Credit under the IDEAS Scheme
Concessional Lines of Credit (LoCs) are a form of tied development assistance extended by the Government of India to partner countries under the Indian Development and Economic Assistance Scheme (IDEAS), routed through the Export-Import (Exim) Bank of India. LoCs fund specific infrastructure and development projects in the recipient country and are distinct from grants — they are loans at concessional interest rates, often tied to procurement of Indian goods and services.
Key Details
- LoCs are extended via Exim Bank of India under the IDEAS scheme (administered with the Ministry of External Affairs and Ministry of Finance)
- Around 600 LoC-funded projects have been extended by India across partner countries, spanning sectors like railways, roads, power transmission, hospitals, and disaster management
- The Rs 4,000 crore (INR/Nu. 40 billion) LoC to Bhutan is denominated in both Indian Rupees and Bhutanese Ngultrum, which is pegged 1:1 to the Rupee
- India funded Bhutan's entire First (1961-66) and Second (1967-72) Five Year Plans, the starting point of the development partnership
The 2026 LoC continues this decades-long pattern in which Indian development assistance to Bhutan is structured project-by-project against Bhutan's own Five Year Plan cycle, currently the 13th (Bhutan's medium-term development framework).
Project Tied Assistance and Bhutan's Five Year Plans
India's development cooperation with Bhutan is delivered mainly through Project Tied Assistance (PTA) — grants for specific, jointly identified projects — layered on top of concessional LoCs. This flows into and supports Bhutan's own Five Year Plan process, its principal national development planning instrument since the 1960s.
Key Details
- Bhutan is currently implementing its 13th Five Year Plan
- India is Bhutan's largest development partner and the largest source of Bhutan's external development assistance
- Sectors covered under current Project Tied Assistance include connectivity, urban infrastructure, education, healthcare, cultural heritage, e-mobility, and renewable energy
- 71 medium-to-large PTA projects were under review at this round of talks
The ecological parks inaugurated (Thimphu Ecological Park, Olakha Park) and the EV handover are examples of completed PTA-funded outputs reviewed during these talks, illustrating how grant assistance (PTA) and concessional lending (LoC) work together in the India-Bhutan development framework.
- Line of Credit signed: INR/Nu. 40 billion = Rs 4,000 crore
- Signed between: Exim Bank of India and the Ministry of Finance, Royal Government of Bhutan
- Occasion: 5th India-Bhutan Development Cooperation Talks, Thimphu
- MoU signed: AIIMS (India) and Khesar Gyalpo University of Medical Sciences, Bhutan (KGUMSB) — health education and research
- EVs handed over: 45
- PTA projects under review: 71 medium-to-large projects
- India-Bhutan Treaty of Friendship: signed 1949, revised February 2007
- Bhutan's current development plan: 13th Five Year Plan