The roots of Bhutan’s economy remain in its natural resources with agriculture and forestry, being the main livelihood for more than half of the population while harnessing of its strong, swift-flowing rivers for generation of hydroelectric power has been also an important key to its economic growth. The service sector is growing rather rapidly in modern times with travel industry being the major contributor.
Bhutan’s economy is one of the smallest yet fastest growing economies of the world and for little more than a decade average economic growth has been 7.6% thus far exceeds world’s growth rate of 3.2%. Extreme poverty is almost eliminated based on figure of international poverty line. Access to basic services such as health, education and asset ownership has also improved significantly. The current national literacy rate is 71% and youth literacy rate is 93%.
Because rugged mountains dominate the terrain and make the building of roads and other infrastructure difficult and expensive, industrial production is primarily of the cottage industry type. The Bhutanese economy is closely aligned with India's through strong trade and monetary links and is dependent on India for financial assistance and migrant laborers for development projects, especially for road construction. India accounts for more than 80% of Bhutan’s internal trade.
Multilateral development organizations administer most educational, social, and environment programs, and take into account the government's desire to protect the country's environment and cultural traditions. Bhutan's overall development strategy is assessed according to the expected impact on the Gross National Happiness indicator, by focusing on providing the population with basic needs, maintaining social cohesion and pursuing sustainable environmental policies.
The most important sectors of the economy remain hydroelectricity, tourism and agriculture. The government has focused on the development of 'low volume, high quality tourism', as a way to protect the environment and mitigate the impact of disrupting influences on the domestic culture. Its largest export – hydropower to India – is creating employment and will probably sustain growth in the coming years. It also exports calcium carbide, wood products and cement. In other major export is agricultural product, including apples, oranges, cardamom, potatoes, asparagus, mushroom. Bhutan hopes to play a larger role in regional economic integration as a member of the South Asia Association for Regional Cooperation and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation.
Bhutan’s economic development policy continues to be guided by the overarching philosophy of Gross National Happiness (GNH) based on the four pillars of sustainable economic development; preservation and promotion of culture and tradition; conservation of environment; and good governance. Hydropower, agriculture, tourism, small & cottage industries and mining are mainly five jewels of Bhutan’s economy.
Hydropower
Hydropower, a strategic national resource, is main driver of Bhutanese economy and country has potential upto 30,000MW of which 23,760 MW has been identified as economically feasible. The export of power is by far the most important component in Bhutan’s foreign trade balance. The development of this sector is key in achieving sustainable economic self-reliance and towards this, development of hydropower have a three-pronged objective of i) meeting the nation’s domestic energy security, ii) promoting industrial growth and iii) enhancing revenue. Acknowledging the potential, the Royal Government has declared hydropower as one of the five jewels of economy. Efforts also targeted to build capacity towards becoming a knowledge centre for hydropower development and related services both in the region and globally.
The first mini hydropower project was commissioned in 1967 and later in 1986 the first mega project, Chukha Hydropower plant with 360MW capacity was commissioned. Then in 2006, another milestone in the power sector was achieved with the launch of1020 MW Tala hydropower project. Bhutan is currently exporting the excess of its hydropower of over 1500 MW to India out of its total present production of around 2000MW. Currently, there are three Hydropower projects under implementation in association with India: 1200 MW Punatsangchhu-I, 1020 MW Punatsangchhu-II and 720 MW Mangdechhu. By 2022, the Royal Government aim to achieve a minimum power generation of 5000 MW.
Agriculture
The agriculture sector considered one of the ‘five jewels’ of Bhutan’s economy, employing about 56% of the population and its contribution to nation’s GDP is about 18%. Country’s major agricultural products are maize (and other cereals), rice, potatoes, citrus, milk, eggs, and spices such as cardamom and ginger. The major horticultural exports are citrus (mandarin), potatoes, chilies, areca nuts, cardamom, and ginger, and several niche crops are also produced or gathered (mushrooms, honey, asparagus, hazelnuts, black pepper, and Sichuan pepper). Bhutan is endowed with diverse ecosystems owing to natural occurrence of complex physiographic and climatic settings. These diverse ecosystems provide a basis to social, economic and cultural developments of the country. Specific to the sector forestry, agriculture and livestock developments take place within these ecosystems. Dairy animals, pigs and poultry also play a valuable part in rural economy.
Tourism
Since its inception in 1974, tourism industry in Bhutan has made a significant contribution to the socio-economic development of the country through revenue and foreign currency generation and employment creation. Internationally Bhutan is well applauded as a sustainable tourism destination guided by principle of ‘High Value & Low Volume’ tourism, targeting mindful and responsible visitors, creating good value for money experiences, high revenue and yield, quality infrastructure and tourism products and services. In the year 2019, USD 345.88 million worth of tourism businesses conducted in the country and tourism’s contribution to country’s GDP have been about 10%.
Cottage & Small Industries
Cottage and Small Industries (CSI) constitute more than 96 percent of the total number of industries. As of now, the sector remains dominated by the service and contract sector with a very small manufacturing base. There is therefore the need to boost development of CSIs as it has the potential to promote regionally balanced development, create jobs and inculcate entrepreneurship in society. For this the government has developed an action plan to, expand small enterprises throughout the country.
Mining
Bhutan’s mineral resources include dolomite, limestone, coal, graphite, gypsum, marble, lead, zinc and copper. There are currently 24 active mines and 40 quarries in the country covering 3,319.86 acres. Mining plays an important role in supply of raw material for the mineral based industries, infrastructure and other development projects. The Royal Government of Bhutan endeavours that mineral resources are utilized in a sustainable manner to diversify the economy as it forms an integral part of the supply and value chain to industries.