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This paper tries to highlight the importance of Indo-Bhutan relationship in the South Asia and South-East Asia region. It also tries to trace the solution to the challenges posed by neighbour China. Indo-Bhutan relation relies on the accord of perpetual peace and friendly relationship of 1949 that relies on mutual belief and advantages. Bhutan is an important contributor to the Northern defence of India. Today both countries are confronting the imperialist policy of China. Doklam road issue, OBOR project, China -Pak corridor and dispute in the Indian Ocean are recent examples of it. This challenge can be tackled by Indo-Bhutan with the help of other Asian countries through the development of Asian Highways and International north-south transport system. This paper will explain the reasons why Bhutan has remained important in South Asia for India.