Recently, Indian Prime Minister Narendra Modi came to this tiny kingdom and made a good impression of continued friendship and assistance even though he mistook the host's name as Nepal and Ladakh during his speech in the Parliament. Modi's visit highlighted Bhutan's geostrategic location at the root of the world. Apart from India, major powers such as China, the US and EU are closely watching.
Of all its neighboring countries, India has the best relationship with Bhutan. After all, successive Indian governments have provided all sorts of assistance and subsidies to the land-locked nation. In more ways than one, Bhutan's economic livelihood depends very much on India's generosity.
India's relations with other South Asian countries including Nepal, Pakistan, Sri Lanka and the Maldives are still problematic. For now, only Bangladesh has amicable relations with New Delhi.
For Modi, the trip to Bhutan had two purposes. First, to give further assurance to Prime Minister Tsering Tobgay that India will continue to provide assistance and remain a strategic partner. It was no secret that India was the big supporter of Tobgay.
Secondly, it sent a strong signal that any diplomatic initiative that would undermine the status quo of India-Bhutan relations would not be tolerated. Former prime minister Jigmi Thinley, the kingdom's first prime minister, wanted very much to expand Bhutan's diplomatic horizon and lift its international profile.
Bhutan bravely applied for a non-permanent seat at the UN Security Council last year, competing head on with South Korea, which prevailed. The kingdom also wants to join the World Trade Organisation and transform the country into a financial hub. Now, Bhutan has diplomatic relations with 52 countries around the world. Only India, Bangladesh and Kuwait have established embassies in Thimphu. Yet, it does not have any link with China.
During the UN Conference on Sustainable Development in Rio de Janeiro in June 2011, Thinley met informally with the Chinese Prime Minister Wen Jiabao, without a prior consultation with India which immediately stirred anger in New Delhi. China and Bhutan are currently demarcating their 406 kilometre common border.
Ahead of the election last May, India drastically cut fuel subsidies, which affected the daily livelihood of Bhutanese and generated fear here that India would reduce its assistance in the future. Consequently, voters turned around and backed Tobgay's People's Democratic Party in a landslide victory.
With Modi's visit, it is clear that Bhutan will be more cautious in moving closer to the north or for that matter taking any new diplomatic move. As far as the major powers - India and China - are concerned, Bhutan's diplomatic tenet remains: Best friend with India, no enemy with China.
The new Bhutanese government will focus on domestic issues, especially in fulfilling noble objectives from the Gross National Happiness policy. From 2012, Bhutan was headlined for its effort to promote a new development paradigm based on more holistic approaches and the concept of happiness, instead of material belongings and other criteria that are common indicators for "well-being".
Indeed, the United Nations was so impressed with Bhutan's inclusive growth model that it assigned March 20 as International Day of Happiness in 2012. That also explains why Bhutan engages actively with all UN-related agencies. Thimphu is a member of the South Asia Association of Regional Cooperation and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation.
However, given the fast changing strategic landscape in Asia, Bhutan is facing a huge dilemma on whether to maintain the current state of affairs or expand its diplomatic space discreetly, but not as assertively as the previous government did, with the outside world.
One option is to adopt a third country policy by strengthening a link with a major power near or far that can serve as a countervailing force with existing powers at home. Over here, Mongolia's foreign policy was often mentioned as a case study. Balancing between China and Russia, Mongolia has approached South Korea as a third country to weigh in with these two powers. Now Seoul is Ulaanbaatar's major trading partner and yields influence in its future direction.
In the case of Bhutan, Japan and South Korea come to mind. Both have been providing technical know-how and other capacity-building. Japan, in particular, ranks only after India in providing economic assistance to Bhutan. Last year, Japan was close to setting up an embassy in Thimphu. However, the scheme was delayed.