The Department of Trade (DoT) has completed the Preliminary National Interest Analysis (PNIA) for the renewal of its existing Agreement on Trade, Commerce and Transit with India, and submitted it to the Cabinet for endorsement. This marks the first step in the process of renegotiating one of Bhutan’s most significant bilateral trade frameworks.
The current agreement, signed on 12 November 2016, will expire in June 2027. It is the sixth version of the treaty since the first formal Agreement on Trade and Commerce was signed in 1972. Earlier renewals took place in 1983, 1990, 1995, and 2006, each adding new provisions and entry/exit points that progressively expanded the scope of bilateral trade.
Why the PNIA Matters
According to the DoT, under Bhutan’s Rules of Procedure for Treaty Making (2016), all treaty proposals must begin with a PNIA, a document that outlines subject matter, main obligations, advantages and disadvantages, and other considerations.
“The PNIA enables the Lhengye Zhungtshog (Cabinet) to make an informed decision on whether to proceed with renewal. It provides transparency and accountability, often being made public after Cabinet approval,” the Department highlighted.
It also ensures that treaty-making is aligned with Bhutan’s national interests and long-term policy priorities.
If the Cabinet endorses the PNIA, the next steps include drafting negotiation parameters, appointing a lead agency and delegation, and coordinating positions with the Ministry of Foreign Affairs (MoFA). Parliament may also review the PNIA, depending on the scope of changes proposed in the renewed agreement.
Significance of the Bhutan–India Trade Agreement
The free trade arrangement between Bhutan and India stems from the 1949 Treaty of Friendship, which provided for free movement of goods between the two countries. This was formalized in 1972 and has since become the cornerstone of Bhutan’s external trade policy.
Key features of the treaty include free trade in goods between the two countries without import duties, transit rights through Indian territory for Bhutan’s trade with third countries, and progressive inclusion of new entry and exit points for Bhutanese trade in successive agreements.
These provisions have not only expanded bilateral trade but also enabled Bhutan’s trade diversification with other partners, using Indian transit routes.
In the meantime, India remains Bhutan’s principal trade and development partner. In 2020, overall trade with India (including electricity) stood at Nu 94.89 billion, accounting for 82% of Bhutan’s total trade. Excluding electricity, trade volume was Nu 67.18 billion, still 77% of the total.
Imports from India comprised 87% of Bhutan’s total imports, while exports to India accounted for 90% of total exports (including electricity) and 77% without electricity.
The liberal trading arrangement under the agreement ensures India’s position as Bhutan’s most vital economic partner.
The Department of Trade maintains that renewal of the 2016 Agreement is expected not only to preserve the free trade framework but also to explore new avenues of cooperation, particularly in areas such as digital trade, transport facilitation, and market diversification.
Additionally, the annual Commerce Secretary-level Meeting (CSLM) between the two governments continues to serve as a key forum for resolving trade and transit challenges while advancing new opportunities for growth.
The Department explained that in view of the close friendship and economic interdependence between the two countries, “the renewal of the Agreement on Trade, Commerce and Transit is envisaged to elevate Bhutan–India socio-economic relations to new heights”, further strengthening a partnership that has been at the center of Bhutan’s development journey since the launch of its first Five-Year Plan in 1961.
Meanwhile in 2024, India-Bhutan trade saw Bhutan’s total exports increase by 19.6% to over Nu 43.3 billion, with exports to India rising by 12% and other countries by 44.6%. India’s exports to Bhutan in 2024 included items such as petrol, rice, and smartphones, while Bhutan exported ferro-silicon, cement, and electricity to India. The two nations also held the CSLM in September 2024 to discuss strengthening trade.
Tashi Namgyal from Thimphu
