Though Bhutan's economy is one of the world's smallest, it has grown rapidly in recent years, by 8% in 2005 and 14% in 2006. In 2007, Bhutan had the second fastest growing economy in the world, with an annual economic growth rate of 22.4%. This was mainly due to the commissioning of the gigantic Tala Hydroelectricity project. As of March 2006, Bhutan's per capita income was $1,321.
Bhutan's economy is based on agriculture, forestry, tourism and the sale of hydroelectric power to India. Agriculture provides the main livelihood for more than 80 percent 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. 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 not been able to benefit from significant trading of its produce. Bhutan does not have any railways, though Indian Railways plans to link southern Bhutan to its vast network under an agreement signed in January 2005. Bhutan and India signed a 'free trade' accord in 2008, which additionally allowed Bhutanese imports and exports from third markets to transit India without tariffs. Bhutan had trade relations with the Tibet region until 1960, when it closed its border with China after an influx of refugees.
The industrial sector is in a nascent stage, and though most production comes from cottage industry, larger industries are being encouraged and some industries such as cement, steel, and ferro-alloy have been set up. Most development projects, such as road construction, rely on Indian contract labour. Agricultural produce includes rice, chillies, dairy (some yak, mostly cow) 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.
The ngultrum is the currency of Bhutan and its value is pegged to the Indian rupee. The rupee is also accepted as legal tender in the country.
Incomes of over Nu100,000 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 $2.913 billion (adjusted to Purchasing Power Parity), making it the 162nd largest economy in the world. Per capita income is around $1,400, ranked 124th. Government revenues total $272 million, though expenditures amount to $350 million. 60% of the budget expenditure, however, is financed by India's Ministry of External Affairs.
Bhutan's exports, principally electricity, cardamom, gypsum, timber, handicrafts, cement, fruit, precious stones and spices, total $513 million (2008 est.). Imports, however, amount to $533 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 58.6% of its export goods. Hong Kong (30.1%) and Bangladesh (7.3%) 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 (74.5%), Japan (7.4%) and Sweden (3.2%).
Economy - overview :
The economy, one of the world's smallest and least developed, is based on agriculture and forestry, which provide the main livelihood for more than 60% of the population. 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 and dependence on India's financial assistance. The industrial sector is technologically backward, with most production of the cottage industry type. Most development projects, such as road construction, rely on Indian migrant labour. Model education, social, and environment programs are underway with support from multilateral development organisations. Each economic program takes into account the government's desire to protect the country's environment and cultural traditions. For example, the government, in its cautious expansion of the tourist sector, encourages visits by upscale, environmentally conscientious tourists. Complicated controls and uncertain policies in areas such as industrial licensing, trade, labour and finance continue to hamper foreign investment. Hydro-power exports to India have boosted Bhutan's overall growth. New hydro-power projects will be the driving force behind Bhutan's ability to create employment and sustain growth in the coming years.
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