Back in 1972, Bhutan, a tiny Himalayan kingdom, proposed Gross National Happiness as a better indicator of well-being than Gross Domestic Product (GDP). Ever since, Bhutan has been a poster child for happiness. Its philosophy has influenced many international committees including one headed by Nobel Laureate Joseph Stiglitz, which has just submitted its report on The Measurement of Economic Performance and Social Progress.

The Stiglitz report says that GDP is a poor measure of well-being, so countries should also measure quality-of-life indicators that make people happy, such as leisure, education, social relationships, political voice and governance. Happiness is, of course, much more than GDP. Yet Bhutan's dirty secret is that it is a world champion in GDP growth.

While many countries faced declining GDP in 2008, Bhutan had the fastest GDP growth rate in the world at 21.4%, says the CIA World Factbook. Bhutan used to be among the poorest countries in the world in the 1980s. But galloping economic growth for two decades took its per capita GDP in 2008 to a respectable $ 1900, almost double neighboring India's $ 1070.

This fabulous GDP growth was not spurred by the pursuit of happiness, but by giant hydropower projects India has been building in Bhutan's steep mountains for two decades. Bhutan's current hydropower capacity is 1,480 MW, and it plans additional projects to generate 10,000 MW of power by 2020, almost entirely for export to India, which provides all the financing.

Large dams are not usually regarded as sources of happiness. Environmentalists usually condemn them for displacing people and submerging forests. Bhutan's neat ploy has been to adopt a green name (Druk Green Power Corporation) for its hydropower producer. It gets away with this since environmentalists shy away from attacking a much ballyhooed Shangri-La of happiness.

Its first big hydropower project of 336 MW capacity at Chuka was commissioned in 1988. This was followed by Kurichhu (60MW) in 2001, Basochho (40MW) in 2005 and the giant Tala project (1,020 MW) in 2007, which largely explains the subsequent huge jump in GDP in 2008. Electricity revenue will provide no less than 60% of the government's entire revenue in 2009.Yet only 66% of Bhutanese households and 39% of its villages are electrified.

Developing countries with rich natural resources, like oil, often fare very badly. Economists talk of a "resource curse" that enables a kleptocratic ruling elite to become very rich without any productive effort or decent governance. Revenues from natural resources flow directly to governments, bypassing citizens.

Hydropower potential is Bhutan's big natural resource, generating vast revenues for its government. To Bhutan's credit, kleptocracy and misgovernance have been kept at bay so far. Yet as hydropower revenue keeps soaring, the risks will keep rising.

Bhutan has done many things to deserve its Shangri-La reputation. Its forest cover is a very high 72%, and it has pledged to keep this above 60 % for eternity. It admits only a small number of high-end tourists, helping preserve the traditional character of its delightful towns. Tourists say the people are very friendly, tranquil and hospitable.

Yet appearances can be deceptive. Bhutan has expelled 100,000 people of Nepali origin, who now languish in refugee camps in Nepal. The Bhutia tribe accounts for roughly 50% of Bhutan's population, and ethnic Nepalese for another 35%. Nepalese migrants have swamped original ethnic groups in neighboring parts of India like Sikkim and Darjeeling. The Bhutias of Bhutan are determined not to be swamped too. Those expelled claim they are regular citizens who have been ethnically cleansed, while the government claims they are illegal immigrants. Such ethnic strife does not look like a recipe for happiness.

In most countries women outnumber men. But Bhutan has only 89.2 females per 100 males, worse even than India (93.3 females per 100 males) where female feticide and infanticide are facts of life. Bhutan's gender ratio suggests discrimination against female children in access to health and food.

The CIA World Factbook estimates literacy in Bhutan at 47%, while a recent Bhutanese publication puts it at 59.5%. Nepal banned TV for decades to protect its people from pernicious modern influences, but finally allowed TV in 1999. Low literacy and media bans are not usually associated with happiness, but some will say that ignorance is bliss.

So, Bhutan's greatest achievement is not its index of Gross National Happiness, but its apparent demonstration that happiness can flow from rapid GDP growth and large dams, overcoming problems like gender discrimination and low literacy.