The Cabinet has approved a new Agreement on Trade, Commerce and Transit between India and Bhutan.

The agreement provides for a free trade regime between two countries, and duty free transit of Bhutanese merchandise for trade with third countries. As per the pact, bilateral trade between will continue to be transacted in Indian Rupees and Bhutanese Ngultrums. “The Agreement was renewed on 29th July 2006 for ten years. The validity of this Agreement was extended, with effect from 29th July 2016, for one year or till the new agreement comes into force, through exchange of Diplomatic notes,” an official statement said on Thursday.

Both sides had in July held talks to finalise the text of the draft new Agreement and had agreed that the new pact would be signed at the earliest. They had then also decided that, in the interim, to prevent disruption of trade, the existing Agreement should be extended for one year or till the new pact is enforced, whichever is earlier.

Bhutan was among the SAARC nations that had shared the concerns of India in the wake of the Uri attack, and expressed solidarity with New Delhi saying it was not conducive to hold the Saarc Summit in Islamabad under the situation that prevailed then. Bhutan is also part of the BIMSTEC grouping that had recently held talks with BRICS nations including India to boost ties.

The bilateral trade had grown by 55 per cent year-on-year in FY’16 to $750 million, with India’s exports rising 40.4 per cent to $469 million, while imports from Bhutan jumping 87 per cent to $281 million.