Economy

The economy of Bhutan, one of the world's smallest and least developed, is based on agriculture and forestry, which provide the main livelihood for 90% of the population and account for about 25% of GDP. Agriculture consists largely of subsistence farming and animal husbandry. Rugged mountains dominate the terrain and make the building of roads and other infrastructure difficult and expensive. The economy is closely aligned with India's through strong trade and monetary links.

Per capita income is around $1,400 (-1,170), ranked 124th. Bhutan's inflation rate was estimated at about 5.5% in 2005. 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.

Economic Sectors

Bhutan's small economy 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, particularly weaving and the manufacture of religious art for home altars are a small cottage industry and a source of income for some. 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. The historic trade routes over the high Himalayas, which connected India to Tibet, have been closed since the 1959 military takeover of Tibet (although smuggling activity still brings Chinese goods into Bhutan).

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, chillies, dairy (yak) products, buckwheat, barley, root crops, apples, and citrus and maize at lower elevations. Industries include cement, wood products, processed fruits, alcoholic beverages and calcium carbide.

Currency

Bhutan's currency, the ngultrum (Nu), 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.

The existing paper currency is being revised and new notes are developed to replace the existing old ones. Coins are also very much in use in Bhutan.

Imports and Exports

Bhutan's exports, principally electricity, cardamom, gypsum, timber, handicrafts, cement, fruit, precious stones and spices, total $186 million (2005). Bhutan's main export partner is India, accounting for 75.3% of its export goods, with other partners including Hong Kong 16.1% and Mexico 4.9%.

Imports, however, amount to $410 million, leading to a trade deficit. Main items imported include fuel and lubricants, grain, machinery, vehicles, fabrics and rice. Bhutan's import partners include India 69.2%, Japan 9.1% and Germany 3.7%.

As its border with Tibet is closed, trade between Bhutan and China is now almost non-existent.

Gross National Happiness

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". The statement 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. In addition, the policy seems to be reaping the desired results: in a recent survey organised by the University of Leicester, Bhutan was ranked as the planet's 8th happiest place.