The bilateral relations between the Himalayan Kingdom of Bhutan and the Republic of India have been traditionally close. India remains influential over Bhutan's foreign policy, defence and commerce. As of 2012-13 fiscal, India's budgetary support to the Kingdom country stands at USD 600 Million, about one-third of India's overall annual foreign aid. Bhutan’s new Prime minister, Tshering Tobgay, secured an aid package from India worth INR 54 billion (USD 819 million, as per the exchange rates at the time of signing the deal) for his nation during his visit to New Delhi in August 2013. Five-sixth of this amount (INR 45 billion) has been earmarked for Bhutan's 11th Five-Year plan. INR 4 billion was for the pending projects of the previous plan period. The remaining INR 5 billion was part of India's "Economic stimulus package" for Bhutan's slowing economy. India operates 3 hydel power projects, of 1,416 MW in Bhutan and 3 more of 2,129 MW are under construction.
For much of its history, Bhutan has preserved its isolation from the outside world, staying out of international organisations and maintaining few bilateral relations. Bhutan became a protectorate of British India after signing a treaty in 1910 allowing the British to "guide" its foreign affairs and defence. Bhutan was one of the first to recognise India's independence in 1947 and both nations fostered close relations, their importance augmented by the annexation of Tibet in 1950 by the People's Republic of China and its border disputes with both Bhutan and India, which saw close ties with Nepal and Bhutan to be central to its "Himalayan frontier" security policy. India shares a 605 kilometres (376 mi) border with Bhutan and is its largest trading partner, accounting for 98 percent of its exports and 90 percent of its imports.
On August 8, 1949 Bhutan and India signed the Treaty of Friendship, calling for peace between the two nations and non-interference in each other's internal affairs. However, Bhutan agreed to let India "guide" its foreign policy and both nations would consult each other closely on foreign and defence affairs. The treaty also established free trade and extradition protocols.
The occupation of Tibet by Communist China brought both nations even closer. In 1958, the then-Indian Prime Minister Jawaharlal Nehru visited Bhutan and reiterated India's support for Bhutan's independence and later declared in the Indian Parliament that any aggression against Bhutan would be seen as aggression against India.
Bhutan, however didn't consider itself as a protectorate country of India. In August 1959, there was a rumour in India political circle that China was seeking to 'liberate' Sikkim in 1975 and Bhutan. Nehru stated in the Lok Sabha that the defence of the territorial uprightness and frontiers of Bhutan was the responsibility of the Government of India. This statement was immediately objected by the Prime Minister of Bhutan, saying Bhutan is not a protectorate of India nor did the treaty involve national defence of any sort.
The period saw a major increase in India's economic, military and development aid to Bhutan, which had also embarked on a programme of modernisation to bolster its security. While India repeatedly reiterated its military support to Bhutan, the latter expressed concerns about India's ability to protect Bhutan against China while fighting a two-front war involving Pakistan. Despite good relations, India and Bhutan did not complete a detailed demarcation of their borders until the period between 1973 and 1984. Border demarcation talks with India generally resolved disagreements except for several small sectors, including the middle zone between Sarpang and Geylegphug and the eastern frontier with the Indian state of Arunachal Pradesh.
Indo-Bhutanese relations par 1972
Although relations remained close and friendly, the Bhutanese government expressed a need to renegotiate parts of the treaty to enhance Bhutan's sovereignty. Bhutan began to slowly assert an independent attitude in foreign affairs by joining the United Nations in 1971, recognising Bangladesh and signing a new trade agreement in 1972 that provided an exemption from export duties for goods from Bhutan to third countries. Bhutan exerted its independent stance at the Non-Aligned Movement (NAM) summit conference in Havana, Cuba also in 1979, by voting with China and some Southeast Asian countries rather than with India on the issue of allowing Cambodia's Khmer Rouge to be seated at the conference. Unlike in Nepal, where its 1950 treaty with India has been the subject of great political controversy and nationalist resentment for decades, the nature of Bhutan's relationship with India has not been affected by concerns over the treaty provisions. From 2003 to 2004, the Royal Bhutanese Army conducted operations against anti-India insurgents of the United Liberation Front of Assam (ULFA) that were operating bases in Bhutan and using its territory to carry out attacks on Indian soil.
India re-negotiated the 1949 treaty with Bhutan and signed a new treaty of friendship in 2007. The new treaty replaced the provision requiring Bhutan to take India's guidance on foreign policy with broader sovereignty and not require Bhutan to obtain India's permission over arms imports. In 2008, India's then Prime Minister Dr. Manmohan Singh visited Bhutan and expressed strong support for Bhutan's move towards democracy. India allows 16 entry and exit points for Bhutanese trade with other countries (the only exception being the PRC) and has agreed to develop and import a minimum of 10,000 megawatts of electricity from Bhutan by 2020.
- "Narendra Modi to address Bhutanese parliament in first foreign visit". IANS. news.biharprabha.com. Retrieved 13 June 2014.
- Singh Visits Bhutan to Show India Backs Its Democratic Changes
- Indo-Bhutanese relations
- Asia Times Online
-  Visit of Nehru and Indira Gandhi
- Neville Maxwell. India's China War,Pantheon Books, 1970, p.115
- Tribune India
- Institute of Peace and Conflict Studies