Singh will hold wide-ranging talks with his Bhutanese counterpart Jigme Y Thinley on issues of mutual interest, including India's development cooperation with the Himalayan kingdom.
The Prime Minister will also meet 28-year-old King Jigme Khesar Namgyel Wangchuck and his father, the former King Jigme Singye Wangchuck.
Visiting Bhutan in its "special" year, Singh will dedicate to the Bhutanese people the 1020 MW Tala hydroelectric project, built with Indian help, and lay the foundation stone for a 1095 MW power plant at Punatsangchhu.
India will benefit from Tala project as its surplus power will be sold to it. Bhutan, which has rich hydro-power potential, exports most of the electricity generated to India.
New Delhi plans to tap 5,000 MW of the nation's estimated 30,000 MW hydel power potential.
"All surplus power from the three commissioned hydro-electric projects in Bhutan is being sold to India," Foreign Secretary Shivshankar Menon told reporters while briefing on the Prime Minister's visit.
During the visit, the Prime Minister is expected to announce a "substantial" contribution to the country's 10th Five Year Plan, Menon said but did not give details.
Singh, who will become the first foreign leader to visit the youngest democracy in Asia, will address a joint session of the first elected Parliament of Bhutan.
The Prime Minister will get the first opportunity to interact with the new leadership and take forward the decades old relations characterised by close consultations, maturity, complete trust and mutual understanding.
Singh's talks with Bhutanese leaders are expected to focus on developing a more diversified and contemporary economic and energy partnership in tune with emerging realities in the two countries.
This year has been special for Bhutan as it marked the coronation of the present king and the kingdom took first steps towards democracy by successful conduct of elections.
"It is the centenary year of the Wangchuk dynasty and it will be the first trip by the Indian Prime Minister to the youngest democracy in South Asia after first elections were held there in March," Menon said.
Singh's visit also coincides with the 50th anniversary of visit of the first Prime Minister Jawaharlal Nehru to Bhutan in 1958 during which the two countries laid the foundation for closer ties.
"Panditji (Nehru) went to Bhutan for a month travelling on a horseback and yakback. Now Prime Minister Singh goes by plane. It just goes to show how economic integration and transport linkages have developed," Menon recalled.
Bhutan took its first steps towards democracy by holding elections to Parliament on March 24 in which almost 80 per cent of the nearly four lakh voters exercised their franchise.
