Just yesterday, Prime Minister Modi, at a rally in Uttarakhand, said:
With just one move on 8 November, the worlds of terrorism, drug mafia, human trafficking and fake note smuggling were all destroyed.
Cracking down on terror funding was one of the promised advantages of demonetisation. But how accurate is this claim?
Cashless Doesn’t Mean Terror-Free
Demonetisation made Rs 500 and Rs 1,000 notes invalid overnight, leaving those with huge stashes of the currency with nothing more than piles of paper. The note ban also took ‘old’ counterfeit notes or Fake Indian Currency Notes (FICN) out of circulation.
Now, common sense dictates that in the world of terrorism, cash transactions would be the norm. How else would one procure large quantities of arms, ammunition, and explosives on the black market? Or carry out other illegal transactions and not leave a paper trail? In that sense, going cashless should wipe out the terror economy.
But countries like Belgium, France, and Germany, which have mostly cashless economies, have nevertheless been struggling with terror attacks, especially in the last couple of years.
Well, terror financing in India does involve cash, but that’s not the only way money changes hands.
If we break down the terrorism that India faces into three broad types, they would be: cross-border terror, which tends to be Islamist in nature; homegrown Islamist terror; and homegrown left-wing terror and insurgency in the North-East. There are other forms of terror as well, including cyber terror and terror inspired by other religions, but these three affect India most.
Cross-Border Terror
Cross-border terror affects areas of Jammu and Kashmir and Punjab, and gets State (and ‘non-state’) support from Pakistan. Funding comes from various sources including counterfeit notes and hawala transfers. While demonetisation clearly affects the former, the latter is also crippled because of a lack of liquidity at present.
But cross-border terrorism is funded in other ways.
Significant terror funding comes via legal means. By way of charities, NGOs, formal bank transfers and even trade. Trade, such as in gems and jewellery, is sometimes conducted at a higher cost than the actual price of the goods and the extra amount gets siphoned off for terror activities.
Foreign currencies can also be legally exchanged for Indian currency.
Cross-border terror is also funded by the narcotics business, which, as is well documented, runs rampant in Punjab. A lot of the drugs are brought in from the Afghanistan-Pakistan region and the money earned funds terror. The Afghan Taliban, the Haqqani Network (both of which have links with Pakistan’s Inter-Services Intelligence), and their affiliates, benefit from this drug trade.
Other criminal activities, such as those controlled by underworld dons such Dawood Ibrahim, also add to this basket of diversified terror funding. These include illicit trade in counterfeit electronics, cigarettes, and pharmaceuticals.
While trade in drugs runs primarily on cash flows and has been disrupted by demonetisation, other kinds of trade and charity donations may not be disrupted. It should be recalled that even in the 1993 Mumbai bomb blasts, money for the operation was actually transferred through official banking channels.
Homegrown Islamist Terror
From the Indian Mujahideen, to ISIS and even al Qaeda, this category includes the terror rings that are busted by the National Investigation Agency on a seemingly regular basis. While there hasn’t been any major terror strike by a homegrown Islamist terror outfit in recent times, these busts take place frequently and most of them involve planning, recruitment, or propaganda activities.
These groups often draw their finances from remittances which are sent legally from the Indian diaspora across the West Asian region. These remittances also go through standard banking routes and may thus not be gravely affected by demonetisation. Plus, recruitment and propaganda activities don’t require the purchase of illegal arms and ammunitions and so, such funding may slip under the radar.
Homegrown Left-wing Terror
Naxal groups in Central India and insurgent outfits in the North-East have been hit by demonetisation, mainly because a significant amount of the funding comes from the local populations through extortion. With the huge drop in cash circulation, sources for money extraction are drying up for these groups.
While some money may also be received from ‘front’ organisations in the form of NGOs and charities, similar to cross-border terror groups, this is not a large amount and can probably not fully fund operations.
So while demonetisation has crippled the free flow of cash and FICN in the terror world, this isn’t the destruction of the terror economy in one fell swoop as Prime Minister Modi describes it. In a few months, the counterfeiting industry may be back up and running, and the ‘legal’ cash being re-inserted into the Indian economy will also give terror its monetary shot in the arm.
Why? Well, mainly because demonetisation has obviously not struck at the channels and the various means of terror funding. It has only choked their cashflow for a while.
If such a comprehensive death knell had been sounded for terrorism, India wouldn’t have seen the Nagrota strike on 29 November or the numerous militant shootings in Kashmir in the last 50 days.
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