Bhutan’s economy is predominantly agricultural with over 60 percent of the people living on subsistence farming. One of the smallest in the world, Bhutan’s GDP size stands at USD 1.6B.
The biggest recipient of government budget is health and education, which are provided free by the government.
In recent times however, serious emphasis has been laid on hydropower development in a bid to achieve self-reliance. Bhutan’s river system has the potential of generating around 30,000 megawatt of electricity.
Most of the power, after meeting domestic requirement, is sold to India, which earns Bhutan, Indian rupee. Hydropower earnings contribute 26 percent to total government revenue.
However, critics are skeptical that Bhutan was putting all its egg in one basket. Diversifying Bhutan’s economy still remains a major challenge and the government has been relying on a single commodity-hydropower.
Bhutan’s economy suffered a serious setback in 2012 from which it is still recovering. The economic slowdown was triggered by a shortfall in Indian rupee. Most of Bhutan’s trade, over 80 percent is with India, and hence a shortage of Indian rupee meant banning car imports and freezing construction loans.
The manufacturing sector in Bhutan is almost non-existent, and therefore, it has to pay rupees for all its imports from India, thus creating a shortage.
After the rupee shortage, growth in GDP slumped to a minimum 2 percent.
Besides the hydropower sector, tourism in Bhutan earns the economy valuable foreign exchange. The government however has adopted a restrictive tourism policy that centers on high value-low impact.
Since Bhutan’s economy is aligned with providing happiness to its citizens, any government policies, plans and programs must pass the gross national happiness-screening test.
Policies are put to test to ensure they are in line with the gross national happiness philosophy.