Bhutan's economy is mainly based on agriculture, forestry, tourism and the production of hydroelectric power for sale to India. Agriculture provides the main livelihood for most of the population. Agricultural produce includes rice and other cereal crops, chilies, potatoes, apples, oranges, maize and dairy and dairy products. The industrial sector although still small is becoming more significant with a number of industries producing cement, wood products, steel, ferro-alloys used in the manufacture of steel, calcium carbide, alcoholic beverages and processed fruits. Handicrafts, particularly weaving and wood carving, is a small cottage industry.

Because of its landlocked geographic location and rugged mountain terrain Bhutan has limited scope to develop industries. One of the only comparative advantages it enjoys is in producing electricity from its many fast flowing rivers. Therefore, in recent years with the assistance of India, the government has embarked on an ambitious program of building large hydropower plants and set a target of a generating capacity of 10,000MW by the year 2020.

Bhutan has a 'free trade' agreement with India, and the Bhutanese currency, called "Ngultrum" is pegged at parity to the Indian Rupee which is also accepted freely in the country. Bhutan's GDP was estimated at around US$1.4 billion in 2010. With a population of around 700,000 this translates into a Per Capita Income of over $2,000 and puts Bhutan ahead of most of its south Asian neighbors, including India.