𝐈𝐧𝐝𝐮𝐬𝐭𝐫𝐢𝐚𝐥 𝐆𝐫𝐨𝐰𝐭𝐡 𝐌𝐚𝐬𝐤𝐞𝐝 𝐁𝐲 𝐒𝐭𝐫𝐮𝐜𝐭𝐮𝐫𝐚𝐥 𝐅𝐥𝐚𝐰𝐬 𝐀𝐧𝐝 𝐄𝐚𝐫𝐥𝐲 𝐃𝐞𝐢𝐧𝐝𝐮𝐬𝐭𝐫𝐢𝐚𝐥𝐢𝐳𝐚𝐭𝐢𝐨𝐧 𝐓𝐫𝐞𝐧𝐝𝐬

…𝒅𝒆𝒔𝒑𝒊𝒕𝒆 𝒔𝒕𝒓𝒐𝒏𝒈 𝒑𝒓𝒐𝒋𝒆𝒄𝒕𝒊𝒐𝒏𝒔 𝒊𝒏 𝒆𝒍𝒆𝒄𝒕𝒓𝒊𝒄𝒊𝒕𝒚 𝒂𝒏𝒅 𝒄𝒐𝒏𝒔𝒕𝒓𝒖𝒄𝒕𝒊𝒐𝒏, 𝒘𝒆𝒂𝒌 𝒎𝒂𝒏𝒖𝒇𝒂𝒄𝒕𝒖𝒓𝒊𝒏𝒈 𝒂𝒏𝒅 𝒃𝒖𝒔𝒊𝒏𝒆𝒔𝒔 𝒆𝒙𝒊𝒕𝒔 𝒆𝒙𝒑𝒐𝒔𝒆 𝒔𝒕𝒓𝒖𝒄𝒕𝒖𝒓𝒂𝒍 𝒇𝒓𝒂𝒈𝒊𝒍𝒊𝒕𝒚

By Yeshi Dolma

As the country projects a 19.48 percent expansion in its industrial sector in 2025, with electricity generation alone expected to increase by over 20 percent, optimism around industrialization as a new economic engine is growing. Yet, beneath the surface of these growth figures lies a deeper concern. The industrial base remains narrowly focused and is beginning to show signs of what economists call premature deindustrialization.

The government’s Annual Macroeconomic Performance and Outlook Report 2025 highlights a troubling trend. The manufacturing sector, which is widely considered essential for job creation and economic diversification, remains underdeveloped. It contributes just 6.04 percent to the overall growth projection for 2025. Although the sector is expanding modestly, it continues to lag behind the levels achieved by comparable economies in Asia. According to the World Bank (2024), manufacturing accounts for just around 8.05 percent of Bhutan’s GDP in 2023, compared to over 22 percent in Bangladesh, about 17 percent in India, and more than 25 percent in Vietnam. These figures indicate untapped potential and emphasize the need for urgent and strategic industrial reform.

At the same time, a capital-output ratio of 4:1 reveals deeper inefficiencies in the economy. In other words, more capital is being used to generate less output, suggesting that resources are not being optimally utilized. If this trend continues, it could weaken the long-term returns expected from ongoing infrastructure and industrial investments.
With agriculture and services showing low productivity and limited GDP contributions, industrialization is now regarded as the most viable path toward sustainable economic growth. The agriculture sector still employs 41 percent of the workforce but contributed only 12.63 percent to GDP in 2024.

Despite years of rural development efforts and subsidy support, the sector remains vulnerable to climate change, wildlife-related damage, and fragmented markets.
Similarly, the public sector, part of the broader services category, employed 18 percent of the workforce in 2024 but accounted for only 10.62 percent of GDP. While tourism, trade, and financial services have shown localized growth, the service sector has not absorbed the labor shift from agriculture on a scale large enough to address rising youth unemployment, currently at 19.1 percent.

This places the industrial sector, despite its weaknesses, as the only area capable of creating high-output employment, improving productivity, and reducing reliance on imports and external aid.
Entrepreneurs across the country are facing the reality of trying to operate businesses in an environment that lacks the full ecosystem required for industrial growth. Many cite difficulties in accessing finance, increasing operational costs, and policy uncertainties as key obstacles.

A former manufacturing unit owner shared that his business, which produced packaging materials for domestic use, was deregistered last year after five years of operation.
“We invested everything we had, but the demand was too small and the costs too high. Accessing raw materials was a nightmare, and there was no support system for scaling up. Eventually, we could not keep up,” he said. “Everyone talks about industry being the future, but we need more than just policies. We need infrastructure, finance, and market access.”

A closer look at industrial growth reveals that it is largely concentrated in resource-based sectors such as hydropower and mining. These capital-intensive industries contribute significantly to gross output but offer limited spillover benefits to the rest of the economy. Manufacturing, which typically drives technological innovation, job creation, and trade integration, continues to remain stagnant.

The electricity sector stands out as one of the few areas showing significant growth. Driven by developments such as Punatsangchhu-II and the commissioning of smaller plants like Yungichhu and Burgangchhu, electricity generation is expected to grow by 20.67 percent in 2025. Construction is also projected to expand by over 30 percent, primarily due to hydropower-related infrastructure. However, such growth remains tied to specific projects and does not indicate systemic industrial development.

The broader industrial base remains fragmented. More than 95 percent of registered industries in Bhutan are categorized as Cottage and Small-scale Industries (CSIs). These enterprises face significant challenges in scaling, including limited access to finance, outdated technology, and inadequate market reach. In contrast, a small number of large-scale industries dominate over 90 percent of market turnover, resulting in a highly concentrated industrial environment that limits opportunities for smaller players.

Market data, such as the Herfindahl-Hirschman Index (HHI), indicates that while small and micro industries operate in highly competitive spaces, large-scale enterprises hold dominant shares, often in protected markets.
One business owner who runs a small agro-processing unit described the competitive pressures faced by smaller firms.
“We are constantly competing with cheaper imported goods. Even when we have the skills and willpower, we cannot scale because the systems do not support us,” she said. “Industrialization sounds good on paper, but down here at the ground level, it often feels like we are on our own.”

A recent deregistration notice revealed that 15 industrial companies and 41 construction and infrastructure companies were removed from the Corporate Registry. Their licenses have been suspended, with some firms cited for non-compliance, and others possibly due to economic pressures in an underdeveloped and inconsistent business environment.

Among the deregistered industrial companies are Druk Ventures Textiles, Jomolhari Feed & Chemical, WoodHill, Yoe AAC Blocks, Knitwear F&B, Samphel Norbu Coffee, KTD Biotics, and Farm2Market. Their closures are not just administrative changes but represent a loss of industrial momentum.

In the construction sector, long-established firms such as Gyelsa Tewa Real Estate Developers, Lho-Mon Builders, Wangnor Engineering, and Pal Gyambo Construction have also shut down operations. Their exit raises concerns about financial viability and regulatory stability in the sector.
Karma Wangchuk, a contractor whose company was deregistered in 2024, said it has become increasingly difficult for builders to remain in business.
“We could not recover after the pandemic. Projects were delayed, payments took too long, and our debt piled up. Even after being delisted, I still get calls asking why we shut down. My answer is always the same. We were not supported enough to survive,” he said.

The country’s industrial growth strategy has also leaned heavily on State-Owned Enterprises (SOEs), which continue to dominate key sectors such as energy, infrastructure, and financial services. While some SOEs, particularly those involved in financial intermediation and manufacturing, have shown improvements in profitability and capital efficiency, many remain heavily indebted and operationally inefficient.

Policymakers have acknowledged the risks associated with an overdependence on hydropower and tourism, and the urgent need to establish a more resilient and competitive industrial base. A comprehensive industrial development policy is increasingly seen as critical not only to guide new investments but also to support and retain existing businesses.

The deregistration of more than 50 industrial and construction companies is a warning signal that cannot be overlooked. Without targeted reforms, improved institutional support, and better access to finance and infrastructure, the country risks undermining its long-term industrial goals.

The focus now must be on reforming state-owned enterprises, supporting entrepreneurs, improving productivity, and fostering industrial growth with a clear and sustainable strategy. The path to economic resilience will ultimately be shaped by businesses that succeed, not by intentions alone.