India has provided Rs 1 billion as a grant to Bhutan for the new government's Economic Stimulus Plan (ESP).
Indian ambassador to Bhutan V P Haran handed over the cheque to Prime Minister Tshering Tobgay on Tuesday.
As requested by Bhutan, India has committed to provide Rs 5 billion to the Himalayan nation, outside the 11th Plan assistance.
Finance minister Namgay Dorji said the grant would be injected through the banks into specific sectors that have potential to "generate employment, substitute imports and enhance exports".
The fund will directly go into the foreign exchange reserve of the Central Bank who would in-turn issue an equivalent amount of Bhutanese currency (ngultrum) to the projects under the ESP.
Under the plan, the government seeks to address the issues regarding the non-availability of loans, as promised during their election campaign.
The additional capital is to be given as loan to productive sectors that contribute to the following national goals: youth employment, SMEs, entrepreneurship and startup business, agro-business, import substitution, construction, housing, green business development and women empowerment.
The gross national happiness commission (GNHC) said through the ESP and injection of funds, the government seeks to ease the current financial crunch in the banking sector, as well as expand the financial sectors? capacity to extend credit for productive economic activities, and priority sectors that can create jobs and provide revenues to the exchequer, Kuensel online reported.
It will also seek to address the current account deficit.