In view of its natural and self-imposed isolation that existed till recently, patterns of economic
activity in Bhutan have been simple. These have been dictated substantially by physiographic
features: with communities settled in the river valleys and in the southern foothills, inter action with
each other as well as the outside world had been limited; economic activity had, therefore, long
been confined to subsistence agriculture supplemented by livestock rearing and cottage industries
based on traditional handicrafts. In the northern region, livestock rearing had been virtually the sole
activity with migrating flocks of yak and sheep. Marketable surpluses in each community had been
extremely limited and whatever little trade that was conducted between the communities and the
outside world was by barter. Each community for most purposes, was traditionally self-sufficient. In
such a situation, the needs of an administration were also minimal and the overall economy was
more or less self-sufficient at a low level of economic activity with little capital formation confined
to replacement or purchase of traditional tools and livestock.