India-Bhutan hydropower cooperation: Perceptions and politics

Punakha Dzong, at the confluence of two rivers in Bhutan

By Saneet Chakradeo

CENTRE FOR SOCIAL AND ECONOMIC PROGRESS | November 11, 2020

In this edition, Saneet Chakradeo interviews Udisha Saklani and Cecilia Tortajada on their article “India’s Development Cooperation in Bhutan’s Hydropower Sector: Concerns and Public Perceptions”, published in Water Alternatives, Vol. 12(2), p 734-759, 2019.

In June 2020, India and Bhutan signed the concession agreement for the 600MW Kholongchhu hydroelectric project, making it the first 50:50 joint venture between the two countries, as opposed to the government-to-government agreements of the past. Speaking on the development, India’s Foreign Minister S. Jaishankar called the hydropower sector “the most visible symbol of the mutually beneficial bilateral cooperation” between India and Bhutan.

Although the concession agreement marked a significant step in the relationship, it came after the project witnessed significant delays since being finalized in 2008, as a part of India’s commitment to help Bhutan create a total of 10,000 MW of installed capacity by 2020.

Moreover, there have been growing public concerns in Bhutan regarding India’s increasing development cooperation in the country over the last few years. The beginning of the 21st century brought many structural changes to Bhutanʼs economy and polity, contributing to a growing public engagement in the country, including public debates on Indian assistance to Bhutan. Indian grants and loans have been directed largely towards energy and infrastructure development, with the resulting development of hydropower, construction, and energy-intensive industries. Consequently, as of July 2017, Bhutan’s debt to India for the three major ongoing projects at the time – Mangdechhu, Punatsangchhu 1 and 2 stood at approximately ₹12,300 crores, accounting for 77% of the country’s total debt and 87% of its GDP. In March 2017, The World Bank reported Bhutanʼs external debt to GDP ratio as 99%, making it one of the ten most indebted among the 73 low-and-middle-income International Development Association countries.

In this context, Udisha Saklani and Cecilia Tortajada, in their article, survey India’s development cooperation in Bhutan and its changing public perceptions. While offering insights into the importance of development cooperation in Indo-Bhutan relations, the article uses the bilateral relationship as a case to propose possible lessons for India in managing its development cooperation with its smaller neighbours. As climate concerns assume greater relevance in shaping bilateral relations in the region, the authors suggest prudent measures for India’s energy diplomacy in the neighbourhood.

Saneet Chakradeo: Your article analyses India’s development cooperation with Bhutan, especially in the hydropower sector, and how the Bhutanese perceive it. While the official discourse on development cooperation is framed around strong commercial interests and mutual benefit, how differently do the Bhutanese people view India’s growing development aid to the country?

Saklani and Tortajada: India and Bhutan have been engaging in hydropower cooperation since the 1980s and for the most part, this relationship has been hailed as a “win-win” cooperation by both the governments. The two neighbouring countries have historically shared a strong relationship built on cultural and political closeness with India ‘guiding’ Bhutan’s defence and foreign policy until 2007. However, the political and economic conditions in both countries have changed significantly, particularly in the new millennium. Bhutan has made a significant shift from absolute monarchic rule to a constitutional democratic system of governance, while India has accelerated its development assistance programme with a dedicated focus on infrastructure-building.

Our paper relies on government documents and media reports in India and Bhutan, as well as official narratives in New Delhi and Thimpu in order to understand the changing views and perspectives of the relationship between the Indian development assistance programme and the relative maturity of Bhutan’s energy generation strategy that relies solely on hydropower construction and trade. We find that as compared to an earlier time, public awareness and opinion in Bhutan regarding Indian investment policies have generated much debate and discussion – and not all of it is positive. This is because of concerns regarding the environmental impact of large hydropower infrastructure and on allowing foreign capital and labour in a small country that is heavily dependent on hydropower revenues (following the “all eggs in the same basket” argument raised by some critics).

We propose that if India has plans to expand its presence in Bhutan through future hydropower projects and other investments, it must engage with an enlarged group of stakeholders, rather than using purely formal diplomatic channels, and complement its efforts with a Track II diplomatic engagement strategy that involves non-state actors such as citizen groups, NGOs, and the private sector to quell any rising apprehensions with regard to its bilateral cooperation with Bhutan.

SC: Your article mentions that the policy discourse in Bhutan has shifted towards re-strategizing the country’s energy policy, with a call to review investments in hydropower, as well as planning for the long-term sustainability of Bhutan’s energy sector. Given emerging climate change concerns and Bhutan’s ‘middle path’ approach to development, how significant is the challenge to maintain and improve energy cooperation between the two countries in the near future?

S&T: Bhutan seemed like an excellent case study to analyse the Catch-22 situation of choosing between economic growth and preservation of socio-natural capital (often imagined to be mutually exclusive goals). The Bhutanese leadership has traditionally followed a development path that relies on principles of moderation to achieve developmental goals without making large compromises on Bhutan’s environment, its aspirations for self-sufficiency in energy production, and its sovereign rights. The concept of Gross National Happiness (GNH) is a reflection of this thinking in Bhutan’s highest policy circles. Given the rising public debt of hydropower construction due to loans, increasing project delays making hydropower much less profitable than its theoretical value, and climate change risks such as glacial outbursts (GLOF) and altered availability of water which affects hydropower generation, the situation can quickly become precarious.

This is a difficult challenge for any lower or middle-income country – all the more for Bhutan which is landlocked and sandwiched between two Asian giants, India and China, that are often embroiled in diplomatic standoffs, territorial conflicts and geopolitical rivalry. For countries to continue engaging in energy cooperation, it is vital to recognize a greater role of science in water diplomacy and use of non-structured, flexible mechanisms for interaction which keeps negotiation open-minded, fluid and in certain cases, even altruistic given the unequal risks and costs of climate and environmental change on individual countries. It is imperative for parties to give top priority to trust and value creation through recognition of ambiguity, different types of uncertainties and entrenched complexities in relation to water sharing and energy development and trade.

SC: You have previously written about how India’s long-term transboundary energy collaboration with Bhutan is different from other countries in the region. Can the India-Bhutan energy relationship be replicated for improving cooperation in the region?

S&T: We have argued that India and Bhutan share a unique partnership, where trust has played a very important role, rather than a representative or replicable model of diplomacy. Bhutan’s economy is closely linked to India through a combination of Indian grants, loans, revenue earned from export of hydroelectricity, and trade in other commodities such as food, fuel, iron and steel, plastic etc. India generously funded Bhutan’s first two five-year development plans (1961-66 and 1966-71) in entirety and continues to contribute to Bhutan’s development vision through sharing of monetary resources and expertise, particularly in the energy sector. Similarly, Bhutan has remained cognizant of Indian’s security and strategic interests in the region against the backdrop of tensions with China. Such mutual gestures have helped seal a strong friendship between the two countries.

Despite the uniqueness of the bilateral relationship, there are some lessons that are useful for Indian diplomacy and for partnerships in South Asia. First, given India’s position as a dominant economic and military power in South Asia, it must accelerate its development cooperation programme and facilitate cross-border flows to match its discursive and strategic positioning. With China’s rapidly growing influence in South Asia (supported by projects such as the Belt and Road Initiative) and strong economic capabilities to give out cheap loans and grants to resource-strapped countries, it is natural for other countries in the region to expect India to hike up its support for meeting their infrastructure and development needs and enhance mutual benefits of economic engagement.

Second, India must focus on bridging the gap between what it promises and what is ultimately delivered. In the first phase of hydropower construction in Bhutan, the Indian government and public sector companies successfully initiated and completed projects in a timely manner. However, the second phase of construction (post-2007) has been a more underwhelming experience with several delays in project implementation and the resultant cost overruns which have become the greatest area of concern for partner countries. It is important for India to develop its reputation as a reliable partner that is capable of executing projects in an efficient manner.

Third, India must invest in enhancing its public diplomacy in neighbouring countries. Cultural-historical linkages and sustained close relationship with Bhutanese political leaders have helped India maintain a strong image in Bhutan. So far, Indian companies, labour, expertise and construction material have supported majority of hydropower activity in Bhutan leading to concerns about jobless growth and squeezing of opportunities for Bhutanese stakeholders. Some critics argue that Bhutanʼs hydropower potential belongs not only to the national government but also to the people of Bhutan.

In this scenario, India must make a greater effort to project itself as a development partner that cares about the larger welfare of the Bhutanese population, and not just movement of Indian capital, procurement of contracts and relationship with the Bhutanese political elites. Given the rapidly changing face of diplomacy and the landscape of international development, a greater thrust on improving communication channels with other stakeholders such as entrepreneurs, media, scholars, and the general public will go a long way in generating positive outcomes for India and reducing the space for suspicion and mistrust between the two partner countries. As recent events show, even in the case of Bhutan, it is becoming increasingly important for India to widen its public outreach to consolidate trust, support and solidarity, both through monetary efforts under its development cooperation programme and by opening up pathways for more equal negotiations with the smaller countries.

Udisha Saklani is a public policy analyst and a doctoral student in Human Geography at the University of Cambridge. Her PhD project focuses on transboundary cooperation in water and energy in the Himalayas. Email: us267@cam.ac.uk. University profile: https://www.geog.cam.ac.uk/people/saklani/

Dr. Cecilia Tortajada is a Senior Research Fellow at the Lee Kuan Yew School of Public Policy, National University of Singapore. The focus of her work is on impacts of global changes on water resources, environment and food. Email: cecilia.tortajada@nus.edu.sg. University profile: https://lkyspp.nus.edu.sg/our-people/faculty/tortajada-cecilia

This article was published by CSEP, November 11, 2020.