Bhutan, is traditionally called ‘Druk Yul’. It is a land-locked country with no access to sea. It is located in the eastern Himalayas bordered by India in the south, east and west and by the Tibetan Autonomous Region of China in the north. It has an area of 46,620 Sq. Km. between latitudes 26 45 ⁰ North and 28 10 ⁰ North and between longitudes 88 45 ⁰ east and 92 10 ⁰ east. Bhutan shares about 1075 km of land boundaries with its neighbours - China 470 km, India 605 km.

The origin of Bhutan and its earlier history is unknown. Guru Padma Sambhava, an Indian saint made his legendary trip from Tibet to Bhutan at the end of eighth century. Bhutan’s history is shrouded in mystery, prior to the arrival of yet another Tibetan Lama (monk), Zhabdrung Nawang Namgyal from Ralung Monastery of Tibet in 1616. Before Namgyal’s arrival, numerous clans ruled in different valleys of Bhutan, having internecine war and quarrel among themselves and with Tibet. The arrival of Zhabdrung Nawang Namgyal is considered as the most important era in the history of Bhutan. He conquered and unified the country under his central leadership, which otherwise was fragmented into petty principalities, ruled over by the tribal feudal chiefs. He established himself as the country's supreme leader and established the Drukpa Kargyupa school of Tantric Mahayana Buddhism in Bhutan. His reign was marked by the introduction of the unique dual system of governance called the Chhoesid. This new system was characterized by the sharing of power and authority between the Deb Raja or the Desi who was the head of secular affairs and the Dharma Raja or the spiritual head, called as Je Khempo. The dual form of governance continued until the birth of the Wangchuk dynasty and establishment of hereditary monarchy in 1907. There are no political parties in this constitutional monarchy which is ruled by the king and a council of ministers.

India has unique relationship with Bhutan. Indo-Bhutan relationship is relatively trouble free, compared to other bilateral relations in the South Asian region. Bhutan and India share traditional, warm, friendly and close bilateral relations – both at political and economic level.

Bhutan’s economy is wholly dependent on India. As a least developed country Bhutan depends on foreign aids for financing its developmental programmes and establishment costs. India has been the largest donor of external aid to Bhutan and its main development partner. Planned development efforts in Bhutan began around early 1960s. The first Five Year Plan (FYP) of Bhutan was launched in 1961. Ever since India has been extending financial assistance to Bhutan's FYPs. Bhutan enjoys complete free trade with India. A completely free trade regime exists between India and Bhutan. Despite the efforts of diversification, India has been the biggest market for Bhutan’s products and imports. India is not only the major foreign aid contributor to Bhutan’s economic development, but a mainstay for its economic survival.

Bhutan signed a political Treaty with independent India in 1949, much before it stepped out of its self-imposed isolation in early sixties. According to Article 2 of the Indo-Bhutan Treaty, 1949, requires Bhutan to be guided by the advice of the Government of India with regard to its external relations. However, the treaty which was signed in 1949, has never become an irritant factor in the traditional warm relationship between the two countries. India is responsible for Bhutanese security. Indian Military Training Team (IMTRAT) is based in Bhutan to provide training to Bhutanese security forces.

In September 1959 Chou-En-Lai wrote to Nehru that the boundry question between Bhutan and China was out of the scope of Sino-Indian border talks. China wanted a direct bilateral border talk with Bhutan. The boundary negotiation between Bhutan and China is a matter of great strategic consideration for India. This development led India to incorporate Bhutan within the Indian security perimeter encompassing the entire north-east under Indian security doctrine. Bhutan for the first time went alone for border talks with China in 1980. This was a major foreign policy initiative for Bhutan. China has also shown interest in establishing residential diplomatic mission in Bhutan. China conveyed its desire first in 1974 during the coronation of King Jigme.

Thereafter, China has been pushing this proposal in every Sino-Bhutanese border talk since the first in Beijing in April 1981. In this context, four points merit special mention here, firstly as a country having contiguous southern borders with Bhutan-India Treaty of 1949. Secondly, it has not approved the presence of the Indian army in Bhutan. Thirdly, it is yet to accept the merger of Sikkim with India and fourthly, China in the past has described the north-eastern states of India as its five fingers. The establishment of Chinese embassy in Thimphu is an Indian security sensitivity. This threat still looms large over Indian security perceptions. Moreover, Indian embassy is too over-stretched in Bhutan to allow the embassy of a rival power to function in this sensitive region.

Bhutan's threat to allow China to open its embassy in Thimphu has made India accept all unreasonable demands of the Bhutanese regime. Bhutan is using this threat as a leverage to extract more and more concessions from India. In 1979, the Chinese army encroached upon Bhutanese territories in the northern part of Ha district. Indian embassy in Thimphu advised Bhutan to submit in writing to the government of India requesting for help. The Bhutanese government did not comply. The stand -off remained for over six months ultimately the Chinese army retreated to its position. Besides, much to the discomfiture of India, Bhutan entered into an 'interim agreement' based on five principles (Panchasheel) with China in December 1998. It was ostensibly meant for maintaining peace and tranquillity along Bhutan-China border. Against such background, Bhutan is said to have taken positively China's proposition that the two countries establish diplomatic relations. Although, this all is against the spirit and content of the 1949 Treaty, India has since the beginning maintained a neutral posture and has not reacted even when Bhutan has grossly violated the provisions of that Treaty. But Bhutan has been unscrupulously playing the China-card against India.

Since a decade, the militants of north-east India have taken shelter in the territories of Bhutan. The militants of United Liberation Front of Assam (ULFA), the National Democratic Front of Bodoland (NDFB) and Kamtapuri Liberation Organisation are operating against Indian security forces from their well-entrenched bases in southern, eastern and central Bhutan. The separatist ULFA and NDFB militants are fighting for an independent Assam for the last more than twenty years. Both their tactical and head offices are now based in Bhutan. It is believed that there are more than two dozen ULFA and Bodo camps in the villages in south-eastern Bhutan. They were seen frequently travelling in Bhutan government vehicles. The top brass of ULFA and Bodo, the two outlawed militant groups, are allegedly living in and move freely inside Bhutan according to Indian media. The newspapers of Assam have published news stories of intimate relationship between the officials of Bhutan and ULFA leaders. Some people believe that Bhutan has become a notorious hub for murderers, abductors and kidnappers from neighbouring Indian territories. In July 2000, the RGOB reportedly admitted that the ULFA transferred funds through its diplomatic bags to foreign countries. The two employees of the Foreign Ministry were also reportedly sacked (Assam Tribune July 6 2000).

The Indian army, the Government of India and the state government of Assam have been persuading the government of Bhutan to initiate a joint Indo-Bhutan army operation to drive out these militants from Bhutan. The government of Bhutan has not, so far, accepted the Indian proposal of a joint Indo-Bhutan operation against the militants in its soil. Instead, the 78th session of Bhutan’s National Assembly held in June, 2000 decided four-pronged strategies to resolve the ULFA-Bodo problem: (1) to continue peaceful negotiations with the militants to try and make them leave the country peacefully; (2) to stop ration and other supplies to the camps of the militants; (3) to punish all persons who helped the militants in accordance with the National Security Act; and, (4) as a last resort, use military action to evict them from Bhutanese soil.