THIMPHU (Reuters) - It is a sign of the times for Bhutan that a $9 million McKinsey consultancy report to find ways to accelerate Bhutan's economic growth has sparked soul-searching among this isolated and mostly conservative people.
For this is a nation famed for being guided by Gross National Happiness, an economic measurement that takes into account indicators ignored by conventional GDP, from recreational time, to forest cover and emotions like anger and envy.
Unnoticed by much of the outside world, Bhutan's new democracy is aiming at a breakneck economic expansion in the next decade of 9 percent a year that would put it on par with the growth ambitions of its huge neighbors India and China.
The question for many in Bhutan is how its "don't worry, be happy" philosophy is compatible with boosting tourism fourfold, building new roads and massive hydroelectric power projects - some being planned with the help of a multinational consultancy.
But Bhutan's new democracy is now facing the reality of ensuring its younger, and more wired, generation, have more jobs, better incomes and good schools.
Underlying this lie worries that if Bhutan does not get it right economically, its new democracy will falter. Its leaders look warily at nearby Nepal, which has suffered protests and economic stagnation chaos since a new democracy emerged in 2006.
"The biggest challenge that worries me is democracy itself," Prime Minister Jigmi Y. Thinley told Reuters in an interview. "In this region and beyond there are so many democracies failing."
"It is not simply to accelerate growth," he added. "I have emphasized that this whole thing again must be put within the context of gross national happiness.
First formulated in the 1970s, GNH has become the guiding principle for Bhutan.
When the young, Oxford-educated Jigme Khesar Namgyel Wangchuck was enthroned as the new king in 2008, and a new parliamentary government was elected, GNH still had pride of place in Bhutan.
It is enshrined in the constitution and recently the national planning commission which oversees the economy was renamed the Gross National Happiness Commission.
Much of Bhutan still strains at the very idea of globalization. Television was only introduced in 1999. Public smoking is banned and the capital has no traffic lights after residents complained they were unsightly. Around 80 percent of the population lives in villages.
"This is a country where we debate whether to introduce meditation into schools," said Karma Tshiteem, secretary of the Gross National Happiness Commission.
But no longer is GNH a cute and vague concept. It now has an economic edge.
Bhutan's first democratically-elected government has raised expectations among many in this nation of 700,000 people, where more than a fifth lives in poverty on less than $0.70 a day.
Bhutan already has free primary education and health care. It is not uncommon for Indians living on the border to cross over to Bhutan, where they have access to better clinics, residents say. But all this costs money.
Nearly half Bhutan's budget is dependent on official aid -- 23 percent of the budget is funded by India. It is a dependency that irks Bhutan. With aid falling in a global crisis, economic growth will be the only way to fill the funding gap for social programs.
"The idea that economic development is necessary for building a vibrant democracy is seeping in," said Sonam Kinga, vice chairman of the upper house National Council. "Jobs have to be created. There is growing unemployment.
The government is planning to quadruple tourism numbers to around 100,000 a year in the next few years and increase its hydroelectric power capacity from 1,500 MW to 10,000 MW by 2020. Hydroelectric power, sold to India at subsidized rates, is the backbone of the economy. High-end tourism runs second.
Still, plans like boosting tourism numbers or plans to set up an IT park in Thimphu, are raising eyebrows.
"I don't see call centers as being compatible with GNH," said opposition leader Tshering Tobgay. "If there is nine percent growth in isolation there is disconnect. If income disparity grows there is disconnect."
But the government must create jobs. Officials estimate that the global economic crunch may have pushed its growth under seven percent last year -- under the annual average of the last decade. Unemployment is at 4 percent, a historical high.
"It is ironic that in a country where we talk about gross national happiness with every breath, we still have places where there is no electricity, no accessible healthcare, no motorable road and no telephone connectivity," said By Yangchen, a 25-year-old student in Thimphu.
Those are the ideas that worry Bhutan's leaders. The government believes it is up to Bhutan's first democratic government to show voters that GNH can live side by side with economic prosperity.
"The big issue is democracy. If democracy fails, nothing, not even GNH, will save us," said Tobgay.
Editing by Sugita Katyal