| About Bhutan - Economy & Trade |
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Economy
Bhutan's economy is one of the world's smallest and least developed, and is based on agriculture, forestry, and the sale of hydroelectric power to India. Agriculture provides the main livelihood for more than 80% of the population. Agrarian practices consist largely of subsistence farming and animal husbandry. Handicrafts are a small cottage industry and a source of income for many. The sculpting of religious figurines is a popular occupation, and gilded Buddha statues and Buddhist saints are sold to tourists. A landscape that varies from hilly to ruggedly mountainous has made the building of roads, and other infrastructure, difficult and expensive. This, and a lack of access to the sea, has meant that Bhutan has never been able to benefit from significant trading of its produce. Bhutan currently does not have a railway system, though Indian Railways plans to link up southern Bhutan with its vast network under an agreement signed in January 2005.[4] Historically, there have been well patronised trading routes from the Tibetan plateau to the Indian subcontinent through Bhutan, but haulage has been limited to human porters and livestock. The industrial sector is minimal, production being of the cottage-industry type. Most development projects, such as road construction, rely on Indian contract labour. Agricultural produce includes rice, corn, root crops, citrus, food grains, dairy products and eggs. Industries include cement, wood products, processed fruits, alcoholic beverages and calcium carbide.
Bhutan's currency, the ngultrum, is pegged to the Indian Rupee. The rupee is also accepted as legal tender in the country. Incomes of over Nu 100,000 per annum are taxed, but very few wage and salary earners qualify. Bhutan's inflation rate was estimated at about 3% in 2003. Bhutan has a Gross Domestic Product of around USD 2.913 billion (adjusted to Purchasing Power Parity), making it the 162nd largest economy in the world. Per capita income is around $1,400 (€1,170), ranked 124th. Government revenues total €122 million ($146 million), though expenditures amount to €127 million ($152 million). 60% of the budget expenditure, however, is financed by India's Ministry of External Affairs.[5] Bhutan's exports, principally electricity, cardamom, gypsum, timber, handicrafts, cement, fruit, precious stones and spices, total €128 million ($154 million) (2000 est.). Imports, however, amount to €164 million ($196 million), leading to a trade deficit. Main items imported include fuel and lubricants, grain, machinery, vehicles, fabrics and rice. Bhutan's main export partner is India, accounting for 87.9% of its export goods. Bangladesh (4.6%) and the Philippines (2%) are the other two top export partners. As its border with Tibet is closed, trade between Bhutan and China is now almost non-existent. Bhutan's import partners include India (71.3%), Japan (7.8%) and Austria (3%).
In a response to accusations in 1987 by a journalist from UK's Financial Times that the pace of development in Bhutan was slow, the King said that "Gross National Happiness is more important than Gross National Product." [6] This statement appears to have presaged recent findings by western economic psychologists, including 2002 Nobel Laureate Daniel Kahneman, that questions the link between levels of income and happiness. It signalled his commitment to building an economy that is appropriate for Bhutan's unique culture, based on Buddhist spiritual values, and has served as a unifying vision for the economy.
Foreign Aid
Bhutan was once totally dependent on India not only for its development assistance but also for its entire government revenue. After it joined the Colombo Plan and the UN,such as the UN, the Colombo Plan, the World Bank, and the Asian Development Bank began to pour in loans and credits. The World Bank granted a US$9 million interest-free loan to help with the development of a calcium carbide plant near Phuntsholing. As of 1990, total Asian Development Bank loans to Bhutan since the latter joined in 1982 amounted to US$30 million. In 1987 and 1988 alone, the bank approved loans totalling more than US$6.9 million to cover the modernization of industrial estates and to provide foreign currency for the Bhutan Development Finance Corporation. Asian Development Bank loans to Bhutan for 1990-93 were projected at US$35 million, plus a grant of more than US$4.85 million; the aid was for technical assistance.
Helvetas began providing funding to Bhutan in 1975. In 1990, for example, Helvetas contributed Nu32.8 million (69 percent of total foreign aid) to establish the Natural Resources Training Institute. The Japanese government gave Nu 74 million in grants for agricultural development and audio training equipment in 1990-91.
In 1989 the World Food Programme approved a two-year US$ 700,000 project to establish food reserves. The Food and Agriculture Organization of the UN sponsored a program to assist Bhutan in achieving food self-sufficiency by 1992.
Economic indicators
Only 1 percent or less of the work force was involved in industry and construction in the late 1980s, and industrial production and construction represented only 14.2 percent of GDP projected for 1991. Handicrafts, cement, food processing, wood milling, and distilling were the major industries. In the late 1980s, there about 400 small-scale cottage and industrial units. There also were two cement plants under the Penden Cement Authority; a joint venture (the government-sponsored Tashi Commercial Corporation in conjunction with the World Bank, Norway, and Kuwait), a Bhutan Carbide and Chemicals calcium carbide plant (near Phuntsholing), and factories for processing fruit, for manufacturing paper pulp, wood veneers, and particle board (Gedu Wood Manufacturing Corporation and Bhutan Board Products), and for producing resin and turpentine. Additionally, there were three distilleries and a salt iodization plant. Other small industrial enterprises manufactured such consumer goods as soap, confectionaries, and furniture. Most of the larger industries, established since Bhutan's economic modernization began in the 1960s, were themselves modern and used a considerable amount of labor-saving technology. The largest industries employed no more than sixty or seventy workers. Many of the newly developing industries began making public stock offerings in the late 1980s.
The mining and quarrying industry was projected to produce 1.5 percent of GDP in 1991. Limestone--used in cement production--and clay were the major minerals being extracted in the mid-1980s. Mineral production also has included marble, dolomite, graphite, and slate. In addition, deposits of copper, gypsum, lead, tin, tungsten, zinc, coal, beryl, mica, pyrites, tufa, and talc have been found, primarily through an exploration program operated initially by the Geological Survey of India and, starting in 1982, in cooperation with the Geological Survey of Bhutan. Although not being exploited as much as other minerals, Bhutan's slate deposits have been described by experts as some of the best in the world. Bhutan's high-quality limestone deposits and energy resources were expected to take on increasing importance in the 1990s because of the contributions they could make to the ferro-silicon industry, which the government hoped to invest in through Bhutan Carbide and Chemicals.
Electricity and gas production was expected by the government to account for 10.7 percent of GDP in 1991. Hydroelectric power has long been a very important aspect of Bhutan's economic development as a low-cost energy source supporting more capital-intensive industries, such as forestry, mining, and cement and calcium carbide production. Bhutan's steep mountains, deep gorges, and fast-flowing rivers create abundant hydroelectric potential, which the government began to develop in the early 1960s with India's assistance. In 1981 Bhutan generated 22 million kilowatt-hours of energy from hydroelectric sources. A major plant in southwest Bhutan--the 18,000-kilowatt Jaldhaka hydroelectric plant--furnished electricity locally and exported the balance to India's West Bengal. The major expansion of hydroelectric facilities started in 1975 on the Wang Chhu between Thimphu and Phuntsholing. Known as the Chhukha Hydel Project, it helped boost the nation's fledgling industrial development. The 336-megawatt Chhukha plant came on line in 1986 and was synchronized with the Indian grid that same year, and additional capacity became available in 1988. The Nu2.44 billion Chhukha project was 60 percent paid for by India and budgeted outside the normal development plan process. It was planned that Bhutan would sell at low cost all power to West Bengal that it did not consume itself. At the same cost, Bhutan also hoped to re-import some of that power through the Indian power grid into southern districts. The Chhukha project was important not only because it supplied electric power to western and southern districts but also because it provided a major source of income for the government. The project's gross annual income was projected at Nu380 million in 1989. In 1989 nearly 95 percent of Bhutan's government-installed power generation--a total of 355 megawatts-- was supplied by Chhukha, and a total of some 20 principal towns and 170 villages had been electrified. By 1990 Thimphu's commercial district had an underground cable system for its power supply.
Besides the Chhukha project, government installations included seven minihydroelectric plants, each averaging 7,350 kilowatts capacity; twelve microhydroelectric plants, each averaging 340 kilowatts capacity; and eight diesel-powered generation stations, each averaging 6,000 kilowatts capacity. Because domestic consumption was low (just over 16 megawatts, more than 80 percent of which was consumed by industry), ample power could be exported to India. The project not only cut domestic electricity costs in half, but also revenues from electricity sold to India were nearly equal to the total government revenue from all domestic sources. Smaller enterprises, such as the 1.5-megawatt Gyetsha Mini-Hydel, which was inaugurated in 1989, brought badly needed power to Bumthang and was expected to provide additional power to neighboring districts by 1993. Another major plant, a proposed 60- megawatt plant at Kurichu in eastern Bhutan, was included in the Sixth Development Plan (1987-92).
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