Bhutan’s border towns cannot win an economic battle with India by simply making goods cheaper, and the Government is refusing to enter what it sees as a potentially damaging race to the bottom.
As businesses in towns such as Phuentsholing, Samdrup Jongkhar and Samtse struggle to retain customers increasingly drawn across the border by cheaper goods, services and business opportunities, the Government has ruled out price competition as the answer to reviving the border economy.
Finance Minister Lekey Dorji acknowledged that border towns are facing serious economic challenges and that restoring their vitality is important to the national economy. But he said Bhutan could not realistically compete with much larger neighbouring markets by trying to match their prices.
“Differences in market size, economies of scale, supply chains and production costs make price-based competition neither realistic nor sustainable,” the minister said.
The message is blunt: Bhutan cannot beat India at India’s game.
With its much larger consumer base, extensive supply networks, greater economies of scale and lower production and distribution costs, the Indian market can often offer products and services at prices Bhutanese businesses struggle to match.
For businesses operating on the Bhutanese side of the border, this creates a particularly difficult environment. Consumers can cross the border with relative ease, compare prices and increasingly make purchasing decisions based on cost. The result is reduced footfall, declining sales and growing pressure on businesses already facing high operating costs.
But the Government believes responding by continuously lowering taxes, relaxing standards or offering ever-larger concessions would ultimately weaken rather than strengthen the economy.
Such an approach, it cautions, could create a race to the bottom in which Bhutan sacrifices tax revenue, regulatory standards and long-term economic interests merely to chase prices it may never be able to match.
Instead, the Government wants Bhutanese border towns to compete on what makes Bhutan different.
Quality, reliability, safety, sustainability, good governance and distinctive Bhutanese products and experiences are being positioned as the foundation for a more durable border-town economy.
The approach is closely aligned with His Majesty The King’s vision of a trust economy, where economic value is not built simply on low prices, but on trust, integrity, quality, sustainability, good governance and the distinctive strengths of Bhutan.
But the Government recognises that asking businesses to compete through quality while leaving them burdened by unnecessary costs would not be enough.
The minister said the Government would therefore focus on removing obstacles created by its own systems and improving the conditions under which businesses operate.
This includes making border and customs procedures faster and more efficient, improving logistics and connectivity, strengthening commercial infrastructure, widening access to finance, streamlining regulations and improving the overall ease of doing business.
For border businesses, these interventions could matter as much as tax reductions. Every unnecessary delay at customs, additional logistical cost, regulatory hurdle or infrastructure weakness adds to the final price of a Bhutanese product and makes it harder for local businesses to compete.
The Government is also considering targeted, evidence-based incentives for activities capable of generating sustainable investment, employment, value addition and wider economic activity.
But it is drawing a line between strategic incentives and blanket concessions.
The minister said tax holidays or permanent concessions simply because a business is located in a border town would have to be carefully examined against their fiscal cost and long-term effectiveness.
“Blanket tax holidays or permanent concessions based solely on geographical location need to be assessed carefully against their fiscal cost and long-term effectiveness,” he said.
This places the burden partly back on businesses and local economies: incentives, where provided, must produce measurable economic returns rather than merely postpone deeper structural problems.
Tourism presents another opportunity, but here too the Government is resisting the temptation to compete primarily on price.
Rather than pursuing visitor numbers by lowering prices or standards, tourism policy is expected to focus on extracting greater and more sustainable economic value from each visitor.
Nidup Lhamo, Thimphu
