DeMo-stung Bhutan dines with China

Charu Sudan Kasturi, TT, New Delhi, Aug. 1: Bhutan is quietly deepening its own channels of diplomatic communication with China, following traces of friction in its unique relationship with New Delhi that is locked in a border standoff with Beijing now.

Vetsop Namgyel, Bhutan's ambassador in New Delhi, on Monday night attended a dinner hosted by Chinese envoy Luo Zhaohui here to commemorate the 90th anniversary of the founding of the People's Liberation Army.

Namgyel's decision to attend the Chinese ambassador's dinner in India - at a time Bhutan has accused the Chinese military of violating a bilateral pact by building a road in disputed territory -was not a one-off instance.

The Bhutan ambassador also visited Luo at the Chinese embassy for a meeting in February when Thimphu was reeling from the effects of India's decision to ban high-value currency notes, senior officials from all three countries told The Telegraph. Bhutan is one of only two countries - Nepal is the other - outside India that accept Indian currency as legal tender.

Senior officials from the Chinese embassy here have also visited Bhutan at least twice in the past four months. Luo's predecessor in New Delhi, Le Yucheng, met Bhutan's Prime Minister Tshering Tobgay during a visit to Thimphu.

Such meetings are not unprecedented, Indian officials clarified, even though Thimphu and Beijing do not have formal diplomatic ties. Indian Air Vice-Marshall S. Prabhakaran also attended the Monday dinner honouring the PLA - as did Pakistan's high commissioner Abdul Basit.

But the frequency of these meetings at senior diplomatic levels has grown, the officials conceded, amid growing areas of tension between Thimphu and New Delhi, rooted in a sense in Bhutan that India isn't always sensitive to its concerns as it expects from its smaller neighbour.

That sense has grown among sections of the Bhutanese population after the hits the country has taken because of India's demonetisation, GST and recent hydropower policies, analysts said.

"We need to change our security-centric mindset with smaller neighbours like Bhutan," former Indian ambassador and Bhutan observer Phunchok Stobdan told this paper. "We aren't comfortable allowing our smaller neighbours to deal with other neighbours. That is the root of the problem."

Bhutan remains dependent on Indian aid for almost a third of its budget, and all its exports to third countries go through India. Till 2007, India was responsible for foreign policy, defence and telecommunications of Bhutan. Even under a revised pact inked that year, India and Bhutan committed to ensuring they would not allow their territories to be used against each other.

India's security concerns have always received special attention in Bhutan, a senior official from the tiny nation said, pointing to joint action in 2003 that helped flush out Indian militants hiding in southern Bhutan.

When China offered Bhutan a "package deal" to settle their border dispute - promising a much larger chunk of territory to Bhutan's east in exchange for the Doklam plateau at its western edge - Thimphu refused.

India had communicated its concerns that Chinese control of the Doklam plateau could bring it closer to the narrow corridor that connects India's northeastern states to the rest of the country.

When Chinese troops began extending a road in the Doklam plateau mid-June, Bhutan allowed Indian soldiers to enter the region to try and stop them.

Effectively, the Indian soldiers - since camped there alongside Chinese and Bhutanese soldiers - have both helped Bhutan prevent a de facto takeover of the plateau by China, and secured New Delhi's security concerns.

But Bhutan's unwillingness to be seen as dependent on India was visible in its response. It issued a demarche - a diplomatic protest note -to China through their embassies in New Delhi. But in its only public statement on the standoff, it did not mention India.

A key reason for the sensitivity is Bhutan's emergence as a democracy since 2008, and upcoming national elections next year. No government or country is comfortable appearing a puppet of another nation.

"Bhutan is not a protectorate of India, but an independent and sovereign country with its own territory, identity and leadership," senior Bhutanese journalist Tenzing Lamsang wrote in an editorial in his newspaper, The Bhutanese, on July 20 amid the standoff between India and China.

That's an identity Bhutan is increasingly willing to assert. Its Parliament has rejected a four-nation transit pact, known as the Bangladesh-Bhutan-India-Nepal motor vehicles agreement, which would allow trucks and cars to travel freely between the four countries.

Bhutan, which has long regulated the number of foreign visitors it allows, is worried that a flood of trucks entering because of the pact may shatter the country's pristine but vulnerable ecology.

India hasn't kept up with Bhutan's changed expectations, said Stobdan, the former ambassador.

"We are not updating our approach keeping in mind the changing realities of the mind," the diplomat said. "Frankly, we don't have the sufficient bureaucratic or political mechanism to deal with those situations."

To many Bhutanese, India has instead appeared insensitive to the country's concerns in recent months - railroading macroeconomic policies that impact Thimphu, and ignoring the smaller nation's worries about their trade imbalance.

Under the Narendra Modi government, India has slowed down its grants to Bhutan for joint hydropower projects, and reduced its import of hydropower from the smaller country. Hydroelectricity is among Bhutan's biggest exports, and its sale to India was expected to help reduce the balance of trade between them.

Then, last November, India overnight announced the ban on old Rs 500 and Rs 1,000 notes. Bhutan allowed the use of Rs 500 notes. According to Bhutan's central bank, the country held Rs 3,000 crore worth of banned currency - which has not yet been exchanged by the Reserve Bank of India.

While the Modi government has marketed the GST as a "Good and Simple Tax", it is also one that may bring pain to Bhutan's traders.

The GST levies higher taxes on imports, reducing the already slim advantage Bhutanese traders had with exports to India. Under the GST, the taxes are also levied at the point of entry into India - as opposed to the point of sale, earlier.

A Bhutan finance ministry team articulated these concerns to their Indian counterparts during a meeting in July, Indian officials confirmed.

But as with the demonetisation, India's bureaucracy is too overwhelmed handling the GST domestically to be able to focus on Bhutan at the moment, they added.