South Asia Beyond India
Bhutan: Hydropower Exports to India
How Bhutan built its economy on selling hydroelectric power to India, the benefits and risks, and its efforts to diversify.
Bhutan is a small Himalayan kingdom of under a million people, best known internationally for its idea of Gross National Happiness. Economically, its most important industry is hydropower, most of which it sells to India.
How it works
Bhutan’s fast-flowing rivers are ideal for hydroelectric dams. India has financed and helped build major projects, such as Chukha, Tala and Mangdechhu, through a mix of grants and loans. Bhutan uses a small part of the electricity and exports the rest to India under long-term agreements.
Hydropower is one of Bhutan’s largest sources of export earnings and government revenue, and accounts for a significant share of GDP.
Benefits
- Revenue for public services, including free health care and education.
- Clean energy for both Bhutan and India.
- Close ties with India, its largest trading partner.
Risks
- Debt: hydropower loans have made Bhutan’s external debt large relative to its economy, though much is linked to projects expected to pay for themselves.
- Delays and cost overruns: some projects, like Punatsangchhu, faced long delays due to geological problems.
- Limited jobs: hydropower creates relatively few permanent jobs.
- Climate risks: changing glacier melt and rainfall could affect river flows.
- Dependence on a single buyer.
Diversifying
Bhutan has sought to diversify through high-value tourism, digital industries and, more recently, the planned Gelephu Mindfulness City, a special economic region announced in 2023. Youth unemployment and emigration of young Bhutanese, many to Australia, have become concerns.
Bhutan cannot easily export its rivers, but it can export the power they generate. A dam built with Indian financing produces far more electricity than Bhutan's small population needs. Selling the surplus to India's grid brings steady revenue, turning a natural resource into a reliable export.
Bhutan pursues economic growth and revenue, especially through hydropower, while also measuring wellbeing and environmental goals. Gross National Happiness broadens its priorities rather than rejecting economic development.
- Bhutan's economy depends heavily on hydropower sold to India.
- India financed and helped build major Bhutanese hydropower projects.
- Hydropower funds public services but brings debt, delays and dependence.
- Bhutan is diversifying through tourism, digital industries and the Gelephu Mindfulness City.
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