The reclusive Himalayan kingdom of Bhutan is to have its first railway after its newly crowned monarch finalised a plan with India to build an 11-mile (18km) link between the two countries.

The railway, funded by India, will be Bhutan’s boldest step yet into the modern world. Lost in time like the mythical Shangri-La, the Buddhist kingdom had no roads or telephones until 1960 and no television until 1999. The track will offer one of the most breathtaking rail journeys in the world across the foot of the Himalayas.

An agreement finalising the details was signed last weekend when Bhutan’s “Dragon King”, the 29-year-old Jigme Khesar Namgyel Wangchuk, visited India on his first official trip abroad since he formally assumed the crown last year.

The new railway has strategic significance as a clear attempt by India to counter China’s efforts to boost its influence in South Asia by expanding trade ties and funding roads, railways and other infrastructure. The plan, reported to cost £120 million, comes amid rising tension between Asia’s two emerging economic giants. The original plan was to connect the town of Hasimara, in the Indian state of West Bengal, with the south Bhutanese border town of Phuentsholing — currently the busiest trading post with India, with a population of just 20,000.

Bhutan later requested that the route be changed to Toribari, a smaller and less congested town nearby that is home to many of Bhutan’s biggest exporters and has more available space for them to develop.

King Jigme, who was educated at Eton and Oxford, is keen to expand trade links with India, which accounts for 98 per cent of Bhutan’s imports and about 90 per cent of its exports — mostly hydropower.

Bhutan held its first parliamentary election last year, transforming itself from an absolute monarchy into the world’s youngest democracy. The new Government is under pressure to develop the fledgeling economy.

India, meanwhile, is increasingly determined to stop China challenging its status as the dominant economic and military power in the region.

Bhutan has close cultural ties to Tibet, which is now part of China, but its relations with India are underpinned by a 60-year-old friendship treaty that grants Delhi a say in Bhutanese foreign and defence policy in exchange for financial aid.

The new railway will use the same broad gauge as most others on the Indian sub-continent, as opposed to the narrower standard gauge used in China.

India also offered to build new railway links to Nepal this year after China was reported to have proposed extending its new trans-Tibet railway to the Nepalese border and building an entire domestic rail network for its impoverished neighbour.

Indian leaders fear that the Chinese plan would undermine their 59-year-old friendship treaty with Nepal, under which India also enjoys considerable influence over Nepalese foreign and defence policy.

Indian officials are anxious, too, about China’s plans to build a rail link from its southwestern province of Yunnan, across Burma, to the Bangladeshi port of Chittagong.

Bangladesh sought financial and technical assistance from China this year to build an 81-mile (130km) stretch of railway from Chittagong to Gundam, in Burma.

The last stop

— Bhutan, known as the Land of the Thunder Dragon because of its violent storms, has a population of 635,000

— 60 per cent of its people survive on subsistence farming; 15,000 to 20,000 of them are monks

— Archery is the national sport

— Smoking is illegal, as is felling a tree or killing a fish

— Bhutan caps its number of tourists at 10,000 a year — fewer than Antarctica

— Every house is built in traditional style and most people wear national costume: for men, a wraparound robe worn with knee-length socks; for women, an ankle-length dress with jacket

— It is the eighth-happiest country in the world, according to a 2006 survey conducted by the University of Leicester

Source: Times database