November 14, 2024

Evolving Identity: Bhutan’s 13th Five-Year Plan for Economic Transformation

For the 13th FYP to succeed, Bhutan will have to leverage its membership in multilaterals like the BIMSTEC and ensure that the injection of capital does not contribute to heightened inflation and fiscal deficit, which will hinder economic restructuring.
Keywords: Bhutan, Development, Economy, BIMSTEC, China, India, Five Year Plan, Investment
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On June 15, 2024, the recently elected Bhutanese government announced the 13th Five-Year Plan (FYP) to be implemented between 2024 and 2029. A country epitomising gradualism, as evinced by its guided journey toward democratisation, Bhutan has allowed itself only a decade to transform into a high-income country—a vision of which this FYP is a cornerstone. Bhutan has not forgone its pursuit of Gross National Happiness, a notion promoted by Bhutan’s fourth king, Jigme Singye Wangchuk, that privileges the oft-intangible dimensions of a citizen’s life to judge their well-being—such as community and family vitality—instead of fixating on national income; however, prevailing societal and economic challenges have compelled Bhutan to pivot toward resolving issues of livelihood by achieving better economic outcomes for its population, aligned with the conventional understanding of “well-being.”

Bhutan is not alone in the global South in setting an aspiration for which it intends to mobilise its national resources: Saudi Arabia’s Vision 2030 and Indonesia’s Golden Vision are similar national agendas directed at structural transformation and elevation of these countries to the status of developed economies. This sudden energy stems from cataclysmic events such as the pandemic and the economic crisis that have necessitated an economic transformation; it also stems from restlessness and activism among the youth.

Bhutan prided itself on resisting influences originating outside its borders, but, in an unprecedentedly networked country, dissatisfaction over relative living conditions and economic health has driven over 60000 Bhutanese abroad, primarily to Australia; the pandemic contracted the economy by over 10%  and squeezed supply chains. Therefore, The economic strategy is a concerted effort to restore equilibrium and plan for a brighter outlook for Bhutan’s increasingly disenchanted youth by economic, and some societal, restructuring. This article will analyse the drivers of this shift, and describe the key planks of the FYP, before defining India’s role in assisting Bhutan in facilitating its implementation.

The 13th FYP: A Transformative Plan

While announcing the 13th FYP, Bhutanese Finance Minister Lyonpo Lekey Dorji lad emphasis on its three pillars, the three P’s—people, progress, and prosperity—that signal a balance between Bhutan’s enduring commitment to people-centric, sustainable development and the imperative of economic growth. Given that the Prime Minister and members of his cabinet have referred to it as transformative, the BTN 512 billion outlay, the largest in the country’s 63-year planning history, will not go toward incremental fixes to maintain the status quo.

While acknowledging that investments in human capital formation increased the GDP per capita to $3718, lifting Bhutan above the status of a Least Developed Country, the FYP concedes that Bhutan has not managed to create productive, gainful employment opportunities for its youth, who lack market-relevant skills. Within the framework of achieving high-income status, Bhutan aspires to increase its nominal GDP from $2.7 billion to $10 billion by 2034, driven by “innovation and sustainability”, upskilling to diversify from a two-sector concentration in hydropower and tourism, and creating a digital economy, replete with start-ups and fintech. The economy, so far, had been avowedly state-led, but, given high youth unemployment, the resistance to the private sector has dissipated: envisioning it as a partner in the $10 billion dream, the FYP instructs the government to loosen regulations for accessing credit, although the lack of an actionable road-map has inhibited the liberalisation in procedures and divestment/privatisation under the Economic Transformation Programme (ETP), that drew BTN 80,000 million for this purpose. Traditional sectors like tourism would be professionalised and the economy would expand to creative arts and finance.

Drivers of Change

Diversification, inviting foreign direct investment (FDI), free market competition, and expanding trade channels underscore a substantial reconfiguration in Bhutan’s political–economic vision of careful engagement with the world. But it is a product of acute circumstances that exacerbated structural economic woes. In 2021, when tourist inflows and remittances had dried up, Bhutan’s economy contracted as we wrote earlier and is growing at a paltry 3.9%, a far cry from the earlier 7%. Paralysis in economic activity shrunk domestic revenues by 23%, while poverty climbed to 12.6%. The 13th FYP consists of a much-awaited Economic Stimulus Package to inject liquidity into the economy, especially in the core sectors of construction and tourism, and generate private investment to generate employment. The tanking economy was an election issue in the 2023-24 Bhutanese General Election; unemployment, inflation, and inequality have featured prominently in every election since 2008, and the fact that no party or Prime Minister has served consecutive terms hints at a perpetual dissatisfaction with the prevailing economic order. In an interview, PM Tobgay argued for the need to “align” his party’s manifesto with the 13th FYP, indicating a cross-party consensus on the need for change that augurs well for policy continuity.

The pandemic also accelerated the flight of young Bhutanese to look for better economic opportunities in Australia, India, Kuwait, etc. The average Bhutanese is under 30 years of age, and a high emigration rate of the country’s youth is symptomatic of bleak prospects. Their migration jeopardises the future of an ageing society. Over 5000 people migrated to Australia in 2021 alone, while Bhutan’s underpaid civil services are rocked by a spate of resignations for lucrative opportunities abroad, which, if it continues unabated, will result in a lack of qualified personnel to deliver public goods. Migration was identified as an existential crisis by the Bhutanese PM and is the primary driver for this radical change.

Low returns are attributed to Bhutan’s low productivity. At 11.1, Bhutan’s Incremental Capital Growth Output is among the highest in the world. Agriculture, employing over 40% of Bhutan’s population, only contributes 16% to the GDP, owing to the prevalence of subsistence and traditional techniques in tilling shrinking pieces of land. The lack of capital formation and private investment, coupled with depleted savings after the pandemic, have driven the government to boost the development of infrastructure for connectivity, foster innovation, and generate new marketing points, bridging the regional divide between the nation’s South and West on one hand and the Eastern and Northern regions on the other. Diversification is paramount: hydropower and allied industries are capital-intensive and employ more foreigners than Bhutanese, who do not rise to managerial positions. A significant chunk of the outlays will go toward building physical infrastructure to achieve time- and cost-efficiency, thereby streamlining supply chains.

India and Bhutan’s 13th FYP: Current and Potential Role

India has long been Bhutan’s largest trade and development partner, and in 2023, their trade surpassed BTN 100 billion, whereas India’s development assistance exceeded Rs. 2000 crores in 2024. However, it bears mentioning that although India’s contribution to Bhutan’s FYPs was increasing in absolute numbers, it declined as a share of the plans. Perhaps recognising the inflection point at which Bhutan stands today, India reaffirmed its support to the 13th FYP and raised its contribution to Rs 10,000 crores, while dispatching aid for the ambitious Economic Stimulus Programme.

Figure 1 Data is sourced from the Ministry of Finance, Bhutan. Graph is author’s own creation.

That the support is going to areas like agriculture and digital infrastructure showcases its recipient-driven nature and the evolution of India-Bhutan ties beyond hydropower generation and physical connectivity. Nevertheless, India cannot ignore that hydropower remains a “crucial area of investment” and the delays incurred for, and ballooning costs of projects at Kholongchhu and Punatsangchhu have raised concerns about the viability of further expansion in this domain. The lack of Bhutanese participation will have to be remedied to ensure continued support for Indian development projects. Bhutan’s dependence on India, even on the backdrop of mutual trust, is not healthy and exposes it to economic cycles in India, e.g. demonetisation crippled Bhutan’s economy. To maintain popular support, India must invest more in capacity-building; it can, after aligning them with Bhutan’s conditions and local conditions, assist the Bhutanese government in replicating successful Indian projects, e.g., AMRUT and the Smart Cities Mission, especially considering that Bhutan is constructing a new city at Gelephu, touted as an upcoming economic, tourism, and financial hub larger than Singapore; furthermore, the FYP’s emphasis on upskilling and tertiary education provides avenues for STEM institutions in India to expand abroad.
To conclude, Bhutan’s 13th FYP, seen in the context of achieving high-income status by 2034, is radical for a country renowned for conserving traditions and cautious modernisation. However, as its youth have become more connected with their counterparts in other countries through social media and television, creeping disillusionment has contributed to record-high migration to other countries. While diasporas can be political and economic assets, the eagerness of a large section of the population to leave the country for better prospects elsewhere raises question about Bhutan’s past economic choices. The economy has always been on the ballot in Bhutan, which makes it unsurprising that border negotiations with China have reached an advanced stage, as Bhutan seeks diversification of markets to reduce its dependence on India. Gelephu is an ambitious project that strikes a balance between Bhutan’s capitalist dreams and its GNH. For the 13th FYP to succeed, Bhutan will have to leverage its membership in multilaterals like the BIMSTEC and ensure that the injection of capital does not contribute to heightened inflation and fiscal deficit, which will hinder economic restructuring.

Figure 2 Data is sourced from the Embassy of India in Bhutan, Thimphu. Graph is created by the author.

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Parth Seth

Parth Seth is a research fellow at the India Foundation. His interest lies in the themes of multilateralism, development, middle powers, and great power competition. He focuses on South Asia, the Middle East and North Africa (MENA), and Chinese foreign policy. While interning at several think tanks, he has assisted researchers in the domains of strategic studies, public policy, and international development. He has written for websites and journals on the themes of South Asia, China, MENA, and the intersection of political philosophy and policy. He completed his postgraduate studies in International Relations from the London School of Economics and Political Science and holds an undergraduate degree in political science from the Ramjas College of the University of Delhi.

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