Bhutan’s unique position in India’s regional strategy

For Preliminary Examination:  Current events of national and international importance

For Mains Examination:  GS II - International relations

Context:

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

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• Bhutan stands out as the largest recipient of India’s financial aid, receiving ₹2,150 crores, highlighting India’s dedication to strengthening its enduring strategic alliance with the Himalayan nation.
• Aid to other neighboring countries, such as the Maldives (₹600 crores), Myanmar (₹350 crores), and Sri Lanka (₹300 crores), has also seen an increase, underscoring India’s heightened focus on regional engagement.
• In contrast, assistance to Bangladesh (₹120 crores) and Nepal (₹700 crores) remains steady, reflecting consistent diplomatic ties. Afghanistan, despite its political instability, has been allocated ₹100 crores, indicating India’s cautious yet ongoing support for development initiatives.
• Bhutan holds a distinctive place in India’s regional strategy. Unlike other South Asian nations that have oscillated between India and China’s competing influences, Bhutan has remained a steadfast ally of India.
• The 2025 budget allocation is not merely a continuation of historical ties but a strategic move to reinforce India’s influence, especially as China intensifies its presence in the Himalayas.
• This financial support is part of a broader plan to ensure Bhutan’s political stability, economic growth, and infrastructure development, given its role as a crucial buffer between India and China.
• It also underscores India’s determination to maintain its strategic dominance in South Asia, particularly as China expands its footprint through infrastructure projects in Nepal, port acquisitions in Sri Lanka, and financial investments in the Maldives.
• By deepening its relationship with Bhutan, India not only safeguards its regional influence but also fosters economic development and clean energy partnerships.
• Bhutan’s alignment with India in multilateral forums 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) highlights India’s ability to build regional coalitions that counterbalance China’s Belt and Road Initiative (BRI).

Bhutan’s Geopolitical Significance

• Situated between two of Asia’s major powers, Bhutan holds significant geopolitical weight in South Asia. Its location just north of India’s Siliguri Corridor, a narrow strip of land connecting India’s northeastern states to the mainland, makes it a vital buffer against China’s territorial ambitions.
• The 2017 Doklam standoff, triggered by China’s attempts to expand its presence in the disputed plateau, underscored Bhutan’s importance in India’s security framework. Since then, China has continued to pressure Bhutan to resolve border disputes while offering economic incentives to draw it closer.
• India’s budgetary commitment to Bhutan for 2025-26 is not just about economic aid—it is a clear geopolitical statement. By supporting Bhutan’s economic and strategic autonomy, India effectively counters China’s attempts to gain influence in this strategically critical region. This support also reinforces Bhutan’s sovereignty, reducing the likelihood of it succumbing to Chinese economic overtures, 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 over the past decade, rising from $484million(2014-15)to$1.6 billion (2022-23), with India accounting for 73% of Bhutan’s total trade.
• The allocation of ₹2,150 crores in 2025 further solidifies these economic ties, reinforcing Bhutan’s reliance on India for trade, investment, and infrastructure development.
• The Modi government has prioritized strengthening this partnership. During PM Modi’s visit to Bhutan in 2019, key projects were launched, including the Mangdechhu Hydropower Project, the ISRO Ground Earth Station, and the introduction of the RuPay Card system.
• Visits by Bhutan’s King to India in 2022 and 2023 further deepened cooperation in hydropower, digital connectivity, and infrastructure development.
• The Bhutanese Prime Minister’s visit in March 2024 highlighted the growing engagement, with discussions on economic assistance, trade corridors, and regional security.

Hydropower Cooperation

• Bhutan’s economy is closely intertwined with India through hydropower exports, which account for 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 prioritize hydropower investments, reinforcing Bhutan’s role as a clean energy hub for the region.
• India has played a pivotal role in developing Bhutan’s major hydropower projects, including Tala (1,020 MW), Chukha (336 MW), Kurichhu (60 MW), and Mangdechhu (720 MW).
• Upcoming projects like Punatsangchhu I & II (2,200 MW) and Kholongchhu (600 MW) will further expand Bhutan’s electricity exports to India, which were valued at ₹2,448 crores in 2022.
• This mutually beneficial arrangement not only ensures Bhutan’s economic resilience but also strengthens India’s energy security as it transitions to renewable energy sources.

A Model for Regional Cooperation

• Beyond hydropower, India remains Bhutan’s primary partner in infrastructure development. The 2025 Union Budget allocates funds for border roads, trade facilitation centers, and modern checkpoints to enhance cross-border trade.
• India’s efforts to integrate Bhutan into regional economic frameworks, such as the BBIN (Bangladesh-Bhutan-India-Nepal) corridor, will enable Bhutanese exporters to access Indian ports more efficiently.
• In the digital realm, India is supporting Bhutan’s fintech infrastructure by facilitating the adoption of RuPay and UPI payment systems, ensuring seamless cross-border transactions. Investments in transportation, rail connectivity, and aviation further tie Bhutan’s economy to India, reducing its reliance on alternative trade routes through China.
• Looking ahead, India’s focus is likely to expand into newer areas of collaboration, such as climate resilience, the digital economy, and green hydrogen initiatives. Bhutan’s ambition to become a leader in renewable energy production aligns well with India’s sustainability goals, paving the way for future cross-border energy projects

Follow Up Question

1.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?

United States Agency of International Development (USAID)

For Preliminary Examination: Current events of national and international importance

For Mains Examination:  General Studies II: Effect of policies and politics of developed and developing countries on India’s interests.

Context:

The Trump administration said Wednesday it is eliminating more than 90% of the U.S. Agency for International Development’s foreign aid contracts and $60 billion in overall U.S. assistance around the world, putting numbers on its plans to eliminate the majority of U.S. development and humanitarian help abroad

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What is United States Agency of International Development (USAID)?

What role does USAID play in India?

Key takeaways:

• The Trump administration’s proposed cuts to USAID programs have left few projects intact, sparking ongoing legal battles with advocacy groups fighting to preserve them. Details of the administration’s plans were revealed in an internal memo obtained by The Associated Press and court filings related to one of these lawsuits.
• These disclosures highlight the scale of the administration’s retreat from U.S. foreign aid and development assistance, marking a departure from decades of U.S. policy that viewed such aid as vital for stabilizing nations, strengthening economies, and building international alliances.
• The memo claimed that the cuts aimed to eliminate “significant waste stemming from decades of institutional drift” and signaled further changes in how USAID and the State Department deliver foreign assistance.
• President Donald Trump and his ally Elon Musk have targeted foreign aid more aggressively than almost any other area in their efforts to shrink the federal government. Both have criticized USAID projects as advancing a liberal agenda and wasting taxpayer money.
• On January 20, Trump ordered a 90-day review of foreign assistance programs to determine which deserved continued funding, effectively freezing all foreign aid almost overnight.
• This funding freeze has halted thousands of U.S.-funded programs worldwide, while the administration and Musk’s Department of Government Efficiency teams have placed the majority of USAID staff on forced leave or terminated their employment.
• USAID, described by the Congressional Research Service (CRS) as the “lead international humanitarian and development arm of the U.S. government,” primarily provides assistance by funding NGOs, foreign governments, international organizations, and other U.S. agencies. Its programs focus on poverty alleviation, education, healthcare, and other critical areas.
• In FY2023, USAID managed over $43 billion in funds, assisting approximately 130 countries. The top 10 recipients of USAID funding that year, in descending order, were Ukraine, Ethiopia, Jordan, the Democratic Republic of Congo, Somalia, Yemen, Afghanistan, Nigeria, South Sudan, and Syria. According to CRS, USAID employed more than 10,000 people in FY2023, with about two-thirds of its workforce stationed overseas.
• This figure does not include thousands of “institutional support contractors” who play a crucial role in implementing the agency’s programs. USAID operates more than 60 missions globally.
• Supporters of USAID argue that the agency is essential for advancing U.S. influence abroad. Jeremy Konyndyk, president of Refugees International, an aid group that does not receive U.S. funding, described USAID as a “national security tool kit developed over 60 years.” He warned that if dismantled, it would be difficult to rebuild, emphasizing its critical role in global stability and diplomacy

Follow Up Question

1.Which of the following areas is NOT a primary focus of USAID’s foreign aid programs?

a) Humanitarian assistance
b) Military operations
c) Global health programs
d) Economic development

What are sovereign green bonds? Why is demand for such bonds weak in India?

For Preliminary Examination: Current events of national and international importance

For Mains Examination: GS III - Economy

Context:

While green bonds help governments raise capital for clean energy and infrastructure, India’s issues have struggled to secure a meaningful ‘greenium’— lower borrowing costs typically associated with such bonds

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What are green bonds?

 Why green bonds?

 Key takeaways:

What Are Green Bonds?

• Green bonds are financial instruments issued by governments, corporations, and international financial institutions to raise capital for environmentally sustainable projects. These projects focus on reducing emissions or improving climate resilience.
• Green bonds generally offer lower yields compared to traditional bonds, ensuring investors that the funds will be directed toward eco-friendly initiatives.
• The difference in yield, referred to as the green premium or greenium, determines the cost advantage of these bonds. A higher greenium enables issuers to secure funds at reduced costs, making such investments more attractive.
• Investors in green bonds typically seek stable, long-term returns and may also be guided by internal or external mandates that require a portion of their funds to be allocated toward sustainable finance.
• Despite their advantages, green bonds form a relatively small segment of the debt market and overall climate finance. However, governments are enhancing reporting standards and introducing incentives to encourage greater investor participation.

Why Green Bonds?

• Sovereign Green Bonds (SGrBs) are green bonds issued by national governments, such as the Government of India, which introduced a framework for their issuance in 2022.
• According to this framework, "green projects" are defined as those that enhance energy efficiency, lower carbon emissions, promote climate resilience, and contribute to ecosystem restoration.
• Since 2022-23, India has issued SGrBs eight times, raising nearly ₹53,000 crore. Approximately 50% of these funds are allocated annually to the production of energy-efficient three-phase electric locomotives under the Ministry of Railways.

For the 2024-25 financial year, the revised allocations for projects eligible under SGrBs include:

• ₹12,600 crore for electric locomotive manufacturing
• ₹8,000 crore for metro infrastructure
• ₹4,607 crore for renewable energy projects, including the National Green Hydrogen Mission
• ₹124 crore for afforestation initiatives under the National Mission for a Green India

Why Is Investor Interest Low?

• Despite efforts to promote SGrBs, investor demand in India remains weak, making it challenging for the government to secure a greenium. Although regulations have been eased to encourage foreign investment, auctions have witnessed low participation, often leading to bonds being devolved to primary dealers.
• Globally, greenium has been observed at around 7-8 basis points, whereas in India, it remains limited to 2-3 basis points, reducing the attractiveness of SGrBs as a funding mechanism.
• One major concern is liquidity—green bonds in India tend to have small issue sizes, and many investors hold them until maturity, restricting secondary market activity.
• Additionally, the country lacks a well-developed ecosystem of social impact funds and responsible investment mandates, which are key drivers of green bond demand in international markets.

Why Does This Matter?

The government's inability to raise sufficient funds through SGrBs affects financing for eligible projects, increasing dependence on general revenue to compensate for funding gaps.

Initially, the projected funding requirement from SGrB proceeds for 2024-25 was estimated at ₹32,061 crore. However, due to challenges in selling these bonds at favorable yields, the revised estimate has been reduced to ₹25,298 crore. As a result, funding for grid-scale solar projects has been significantly reduced from ₹10,000 crore to ₹1,300 crore.

Follow Up Question