COUNTRY BACKGROUND - Gross National Happiness Commission

CHAPTER 2
ECONOMIC PERFORMANCEECONOMIC
PERFORMANCE
I. IntroductionI. Introduction
Economic Performance
2.1 This Chapter describes the early development of the Bhutanese economy and provides a more detailed analysis
of the economy during the 1980s. Government expenditures and revenues are summarised, as well as Bhutan's
trade performance during the period. Economic developments during 1989-91 are also discussed to highlight the
circumstances under which the Seventh Five Year Plan was prepared. In view of the Government's emphasis on
improving not only economic growth and equitable incomes, but also the quality of life, the final section reviews
the Human Development Indicators for Bhutan.
II. Economic Development before 1980II. Economic Development before 1980
The Traditional EconomyThe Traditional Economy
2.2 The shape of Bhutan's traditional economy was determined by the constraints identified in Chapter 1: its
isolation from the external world and poor internal communications. There were well-established trading links
across the Himalayas, but with their reliance on porterage and pack animals, trade was mainly in low volume, high
value articles. It was a practical requirement for valley communities to be self-sufficient in basic necessities,
especially foodstuffs, and most production was for subsistence.
2.3 Over the centuries, the Bhutanese people developed farming systems which met their subsistence needs and
used available resources in a sustainable way. Considerable capital investments were embodied in terracing,
irrigation, housing and religious/administrative buildings. Because the economy was largely unmonetised, taxation
— to support the administrative and religious establishment and to maintain community infrastructure — was in
kind, in the form of labour contributions or grain taxes.
2.4 Within its constraints, the traditional economy was very successful. It afforded a comparatively high material
standard of life (reflected in the absence of a large class of landless labourers and significantly higher wage rates
than in India), but health standards were very poor, and the economy's potential was limited in the absence of
greater specialisation and trade. Thus until fairly recently, the majority of the population were dependent on
agricultural production as there was no industrial production of any significance.
Early DevelopmentEarly Development
2.5 Bhutan remained closed to the outside world until the 1960s when efforts to increase links with other countries
were initiated by King Jigme Dorji Wangchuck. During this time the first Development Plan was prepared and
implemented in the period 1961/66. The emphasis of the first Development Plans was on establishing basic
infrastructure to reduce Bhutan's physical isolation and improve internal communications, while also building up
the institutions of a modern economy and state, especially through education and training. Economic and social
statistics for the period from 1960—80 are very sparse, but it is clear that the improvement in communications
began a transformation of the economy which is still going on. Better communications made trade more feasible,
and this in turn prompted increased monetisation and opened the way for more specialisation in production. A
striking example of such specialisation has been the trend towards production of horticultural crops for export,
complemented by imports of rice. Taking advantage both of better communications and the availability of low-cost
Indian labour, most industrial development took place near the Indian border, and the pace of modern sector
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