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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.
Though Bhutan's economy is one of the world's smallest, it has grown rapidly in recent years, by eight percent in 2005 and 14 percent in 2006. In 2007, Bhutan had the second fastest growing economy in the world, with an annual economic growth rate of 22.4 percent. This was mainly due to the commissioning of the gigantic Tala Hydroelectricity project. As of March 2006, Bhutan's per capita income was US$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. 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 in a nascent stage, and though most production is cottage industry type larger industries are being encouraged and some industries such as cement, steel, ferro alloy, etc., have been set up. Most development projects, such as road construction, rely on Indian contract labour. Agricultural produce includes rice, chilies, 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.
Incomes of over Nu 100,000 per annum are taxed, but very few wage and salary earners qualify. Bhutan's inflation rate was estimated at about three percent in 2003. 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.
Haa Valley, September, 2006Per capita income is around $1,400, ranked 124th. Government revenues total $272 million, though expenditures amount to $350 million. 60 percent 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 €128 million (2000 est.). Imports, however, amount to €164 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 87.9 percent of its export goods. Bangladesh (4.6 percent) and the Philippines (two percent) 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 (71.3 percent), Japan (7.8 percent) and Austria (three percent).
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." This statement appears to have presaged recent findings by western economic psychologists, including 2002 Nobel Laureate Daniel Kahneman, that question the link between levels of income and happiness. The statement signaled his commitment to building an economy that is appropriate for Bhutan's culture, based on Buddhist spiritual values, and has served as a unifying vision for the economy. In a survey in 2005, 45 percent of Bhutanese reported being very happy, 52 percent reported being happy and only three percent reported not being happy. Based on this data, the Happy Planet Index estimates that the average level of life satisfaction in Bhutan is within the top 10 percent of nations worldwide, and certainly higher than other nations with similar levels of GDP per capita.
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