From FERA to FEMA

For the past over one year, one has been reading and hearing a lot about the new Foreign Exchange Management Act (FEMA), which was to replace the Foreign Exchange Regulation Act, 1973 (FERA). FEMA was ultimately passed by Parliament in 1999, but was to take force from the date of notification. Ultimately now, it has been notified that FEMA has come into force from 1st June 2000.
Why was it necessary to replace FERA by FEMA? How different is FEMA from FERA? Is it merely change of one word, from "Regulation" to "Management"? How does the change from FERA to FEMA affect common citizens such as you, who are Indian residents not engaged in imports or exports?

To understand the difference, one needs to understand the underlying principles of FERA. FERA was introduced at a time when foreign exchange (forex) reserves of the country were low, forex being a scarce commodity. FERA therefore proceeded on the presumption that all foreign exchange earned by Indian residents rightfully belonged to the Government of India and had to be collected and surrendered to the Reserve bank of India (RBI) expeditiously. It regulated not only transactions in forex, but also all financial transactions with non-residents. FERA primarily prohibited all transactions, except to the extent permitted by general or specific permission by RBI.

Violation of FERA was a criminal offence. One has heard so many stories of people being imprisoned for trivial offences. The case of the eminent industrialist, S.L.Kirloskar, being proceeded against under FERA for having the princely amount of $82 (or was it $86?) in his possession is well known. If you had ever visited a relative abroad, or had non-resident relatives visiting you, the chances are high that you had also violated FERA. In such cases, it is highly likely that your relatives may have given you or your visiting family members some small gift in forex, which you spent on buying some small article which you wanted to bring back. Or you may have spent some money on hospitality towards your non-resident relatives visiting you. Strictly, speaking, till the 1990's, these were FERA violations. Thank your lucky stars that you were not considered prominent enough for being punished under FERA. FERA had become more of a tool in the hands of politicians for punishing people who refused to toe their line.

Fortunately, with the winds of liberalization blowing in the early 1990's, the Government relaxed many of the rigours of FERA by issuing notifications. Forex reserves swelled, the rupee was made convertible on current account. In this liberal atmosphere, the government realized that possession of forex could no longer be regarded as a crime, but was an economic offence, for which the more appropriate punishment was a penaly. Thus, the need of FEMA was felt. The primary difference between FERA and FEMA therefore lies in the fact that offences under FEMA are not regarded as criminal offences and only invite penalties, not prosecution and imprisonment.

FEMA now codifies in the legislation and rules itself various transactions, which had been permitted by notification under FERA. Under FEMA, all current account transactions in forex (such as expenses, which are not for capital purposes) are permitted, except to the extent that the Central Government notifies. However, so far as capital account transactions are concerned, all capital account transactions in forex are prohibited, except to the extent as may be notified by RBI.

Does this mean that you can spend unlimited forex on whatever you want, so long as it is not a capital expense, such as investment? Certain prohibitions are laid down in the Foreign Exchange Management (Current Account Transactions) Rules, 2000. You cannot remit money for purchase of lottery tickets, for subscription to banned/prescribed magazines, to football pools, sweepstakes, for payment for telephone callback services, etc. Under the rules, certain remittances can be made only with prior approval of RBI. Many of these require permission only if the spending exceeds a particular limit. In effect, this means that you can spend amounts less than that without any approval being required. Some of these remittances, not requiring approval, are:
1. Up to US $ 5,000 in every calendar year for foreign travel (increased from the limit of US $ 3,000 under FERA).
2. Up to US $ 25,000 per trip for a business trip or for attending a conference abroad, irrespective of the length of the trip (under FERA, you had limits per day plus an entertainment allowance).

3. For gifts up to US $ 5,000 per beneficiary per annum (under FERA, the limit was US $ 1,000 and restricted only to defined relatives).

4. For donations up to US $ 5,000 per beneficiary.

5. For maintenance of close relatives abroad up to US $ 5,000 per recipient.

6. For foreign studies up to US $ 30,000, or the estimate from the foreign institution, whichever is higher.

7. For meeting expenses for medical treatment abroad, up to the estimate from doctor in India or hospital or doctor abroad.

There do not seem to be any restrictions on payments to be made in forex for various sundry expenses, such as purchase of books or software for your own use, for which there were certain limits under FERA.

If you have received forex as a gift abroad or earned it from a non-resident or on a visit abroad or acquired it for spending a foreign trip, you can now retain up to US $ 2,000 in forex even after your return to India, besides any amount of coins that you may choose to keep.

Of course, since capital account transactions are still prohibited (except to the extent permitted), you still cannot invest your funds in overseas investments (unless you are an employee of a foreign company or its subsidiary and have been offered stock options in the foreign company).

Hopefully, judging by the past trends relating to liberalisation of forex regulations and the intention behind FEMA, that day will not be too far off! BSE and NSE would then need to be watch out - NASDAQ may soon replace them as the Indian investor's favourite exchange.

how to manage surplus Forex..

IT IS now more than two years since the global financial meltdown, but the global economy still suffers from severe economic imbalances on account of large current account deficits run by some countries and the huge foreign exchange reserves that are held by the surplus countries. In 2006, the US current account deficit accounted for as much as 2% of world GDP. These imbalances have come about because of several factors. In the 1970s, it was inflation in the West on the back of the oil cartel raising crude oil prices to stratospheric levels that transferred unimaginable wealth to avery few in west Asia.


In more recent times, it has been the insatiable appetite for cheap consumer goods in the West that has helped some Asian countries accumulate huge foreign exchange reserves. The large foreign exchange reserves held by the trade-surplus countries have, in turn, created a massive demand for safe assets for investment of these surpluses, and this is seen as one of the root causes of the global financial meltdown in 2008.

Over the last decade, while the robust export-led growth in several countries in the emerging market space led to generation of significant current account surpluses, these markets have not attained the maturity to create sufficiently-liquid stores of value in which the surpluses can be invested. These surpluses, therefore, find their way to safe assets that are largely issued by the developed countries.

Among such financial assets are sovereign and quasi sovereign bonds issued by nations that are seen to respect property rights and have well-tested bankruptcy procedures, resilient, liquid and deep financial markets with minimal risks of government expropriation.

Some developed countries are privileged to be in a position to issue large volumes of these safe assets that has resulted in falling yields on their bond issuances. The incessant rise in gold prices can also be largely ascribed to the growing demand for safe assets.

In his recent paper on this subject, Ricardo Caballero of MIT has argued that it is this insatiable hunger for safe debt instruments and the scarcity of such instruments that created the setting for the large global banks to exploit the opportunity. These banks effectively addressed the safe asset shortage phenomenon at a profit by creating synthetic safe assets from the securitisation of lower quality ones by slicing and dicing them to various tiers, ably assisted by willing credit rating agencies but at the cost of exposing the economy to the systemic panic that unfolded in 2008.

It is worth considering the possible policy options that are available to address the acute shortage of safe assets. The surplus countries can moderate their demand for safe assets by partly investing in riskier assets. The memories of the Asian financial crisis of the mid-1990s are possibly too fresh for these newly-surplus countries to consider taking higher levels of risks with their reserves.

Despite the current global slowdown, over the last 12 months itself, Asian countries have generated a current account surplus of around three quarters of $1 trillion. Their holding of foreign exchange reserves is in excess of $6 trillion, around two-thirds of the global foreign exchange reserves.

The key takeaway from the global financial meltdown of 2008 and the ongoing sovereign credit crisis is that a suitable framework should soon be put in place for addressing the potential systemic problems that has widespread acceptance across countries. Such a framework would need an agreement on the holding of a diversified portfolio of assets across the risk spectrum by the surplus countries instead of a concentrated portfolio of safe assets.

THE diversified investment portfolios of sovereign wealth funds of countries such as Singapore, Abu Dhabi, Norway and even China in a small way are examples that more of the surplus nations would need to follow. The surplus countries have a significant stake in the stability of the global financial system and, therefore, the choice before them is to either facilitate an orderly adjustment in the global imbalances or run the risk of defaults on the huge financial claims held by them that they can ill-afford. Getting an agreement in place to address the massive global imbalances, therefore, should not be an impossible task.

Another policy alternative is for the asset-producing countries to supply adequate triple-A assets even beyond their fiscal needs that, in turn, would require them to invest in riskier assets themselves. The Troubled Asset Relief Program (Tarp) that enabled the US government to purchase assets and equity from financial institutions to strengthen the financial sector in the aftermath of the subprime mortgage crisis is an example of such a policy in action.

Although the programme was much criticised, in retrospect, it should be conceded that it was indeed appropriate for solving the systemic crisis because the fear that the government would be left holding companies such as General Motors, Citigroup and AIG for several years have not come true. Most of these investments made to bail out the marquee US companies have been repaid and the rest appear to be on track to repay.

While Tarp was a fire-fighting exercise, it is worthwhile developing a widely-acceptable institutional mechanism to manage systemic risks in an orderly manner with private investors absorbing the consequences of most shocks, but the government providing some form of mandatory fee-based insurance against alarge systemic event.

The move to increase capital requirements of banks has to be seen in this light. Another alternative is to have contingent capital injections in banks through convertible bonds that get compulsorily converted when the financial strength of a bank falls below a pre-determined threshold. The imbalance between the demand for, and supply of, safe assets has indeed worsened over the last two years, with several sovereign bonds being downgraded and many others on the verge of being downgraded.

It takes several years to set right such imbalances even when effective policy interventions are in place. It is, therefore, imperative that an institutional mechanism to address such systemic problems is put in place soon.......

geopolitics of oil and Iran.

As the United States gears up for an attack on Iran, one thing is certain: the Bush administration will never mention oil as a reason for going to war. As in the case of Iraq, weapons of mass destruction (WMD) will be cited as the principal justification for an American assault. "We will not tolerate the construction of a nuclear weapon [by Iran]," is the way President Bush put it in a much-quoted 2003 statement. But just as the failure to discover illicit weapons in Iraq undermined the administration's use of WMD as the paramount reason for its invasion, so its claim that an attack on Iran would be justified because of its alleged nuclear potential should invite widespread skepticism. More important, any serious assessment of Iran's strategic importance to the United States should focus on its role in the global energy equation.
Before proceeding further, let me state for the record that I do not claim oil is the sole driving force behind the Bush administration's apparent determination to destroy Iranian military capabilities. No doubt there are many national security professionals in Washington who are truly worried about Iran's nuclear program, just as there were many professionals who were genuinely worried about Iraqi weapons capabilities. I respect this. But no war is ever prompted by one factor alone, and it is evident from the public record that many considerations, including oil, played a role in the administration's decision to invade Iraq. Likewise, it is reasonable to assume that many factors -- again including oil -- are playing a role in the decision-making now underway over a possible assault on Iran.
Just exactly how much weight the oil factor carries in the administration's decision-making is not something that we can determine with absolute assurance at this time, but given the importance energy has played in the careers and thinking of various high officials of this administration, and given Iran's immense resources, it would be ludicrous not to take the oil factor into account -- and yet you can rest assured that, as relations with Iran worsen, American media reports and analysis of the situation will generally steer a course well clear of the subject (as they did in the lead-up to the invasion of Iraq).
One further caveat: When talking about oil's importance in American strategic thinking about Iran, it is important to go beyond the obvious question of Iran's potential role in satisfying our country's future energy requirements. Because Iran occupies a strategic location on the north side of the Persian Gulf, it is in a position to threaten oil fields in Saudi Arabia, Kuwait, Iraq, and the United Arab Emirates, which together possess more than half of the world's known oil reserves. Iran also sits athwart the Strait of Hormuz, the narrow waterway through which, daily, 40% of the world's oil exports pass. In addition, Iran is becoming a major supplier of oil and natural gas to China, India, and Japan, thereby giving Tehran additional clout in world affairs. It is these geopolitical dimensions of energy, as much as Iran's potential to export significant quantities of oil to the United States, that undoubtedly govern the administration's strategic calculations.
Having said this, let me proceed to an assessment of Iran's future energy potential. According to the most recent tally by Oil and Gas Journal, Iran houses the second-largest pool of untapped petroleum in the world, an estimated 125.8 billion barrels. Only Saudi Arabia, with an estimated 260 billion barrels, possesses more; Iraq, the third in line, has an estimated 115 billion barrels. With this much oil -- about one-tenth of the world's estimated total supply -- Iran is certain to play a key role in the global energy equation, no matter what else occurs.
It is not, however, just sheer quantity that matters in Iran's case; no less important is its future productive capacity. Although Saudi Arabia possesses larger reserves, it is now producing oil at close to its maximum sustainable rate (about 10 million barrels per day). It will probably be unable to raise its output significantly over the next 20 years while global demand, pushed by significantly higher consumption in the United States, China, and India, is expected to rise by 50%. Iran, on the other hand, has considerable growth potential: it is now producing about 4 million barrels per day, but is thought to be capable of boosting its output by another 3 million barrels or so. Few, if any, other countries possess this potential, so Iran's importance as a producer, already significant, is bound to grow in the years ahead.
And it is not just oil that Iran possesses in great abundance, but also natural gas. According to Oil and Gas Journal, Iran has an estimated 940 trillion cubic feet of gas, or approximately 16% of total world reserves. (Only Russia, with 1,680 trillion cubic feet, has a larger supply.) As it takes approximately 6,000 cubic feet of gas to equal the energy content of 1 barrel of oil, Iran's gas reserves represent the equivalent of about 155 billion barrels of oil. This, in turn, means that its combined hydrocarbon reserves are the equivalent of some 280 billion barrels of oil, just slightly behind Saudi Arabia's combined supply. At present, Iran is producing only a small share of its gas reserves, about 2.7 trillion cubic feet per year. This means that Iran is one of the few countries capable of supplying much larger amounts of natural gas in the future.
What all this means is that Iran will play a critical role in the world's future energy equation. This is especially true because the global demand for natural gas is growing faster than that for any other source of energy, including oil. While the world currently consumes more oil than gas, the supply of petroleum is expected to contract in the not-too-distant future as global production approaches its peak sustainable level -- perhaps as soon as 2010 -- and then begins a gradual but irreversible decline. The production of natural gas, on the other hand, is not likely to peak until several decades from now, and so is expected to take up much of the slack when oil supplies become less abundant. Natural gas is also considered a more attractive fuel than oil in many applications, especially because when consumed it releases less carbon dioxide (a major contributor to the greenhouse effect).
No doubt the major U.S. energy companies would love to be working with Iran today in developing these vast oil and gas supplies. At present, however, they are prohibited from doing so by Executive Order (EO) 12959, signed by President Clinton in 1995 and renewed by President Bush in March 2004. The United States has also threatened to punish foreign firms that do business in Iran (under the Iran-Libya Sanctions Act of 1996), but this has not deterred many large companies from seeking access to Iran's reserves. China, which will need vast amounts of additional oil and gas to fuel its red-hot economy, is paying particular attention to Iran. According to the Department of Energy (DoE), Iran supplied 14% of China's oil imports in 2003, and is expected to provide an even larger share in the future. China is also expected to rely on Iran for a large share of its liquid natural gas (LNG) imports. In October 2004, Iran signed a $100 billion, 25-year contract with Sinopec, a major Chinese energy firm, for joint development of one of its major gas fields and the subsequent delivery of LNG to China. If this deal is fully consummated, it will constitute one of China's biggest overseas investments and represent a major strategic linkage between the two countries.
India is also keen to obtain oil and gas from Iran. In January, the Gas Authority of India Ltd. (GAIL) signed a 30-year deal with the National Iranian Gas Export Corp. for the transfer of as much as 7.5 million tons of LNG to India per year. The deal, worth an estimated $50 billion, will also entail Indian involvement in the development of Iranian gas fields. Even more noteworthy, Indian and Pakistani officials are discussing the construction of a $3 billion natural gas pipeline from Iran to India via Pakistan ¬ an extraordinary step for two long-term adversaries. If completed, the pipeline would provide both countries with a substantial supply of gas and allow Pakistan to reap $200-$500 million per year in transit fees. "The gas pipeline is a win-win proposition for Iran, India, and Pakistan," Pakistani Prime Minister Shaukat Aziz declared in January.
Despite the pipeline's obvious attractiveness as an incentive for reconciliation between India and Pakistan -- nuclear powers that have fought three wars over Kashmir since 1947 and remain deadlocked over the future status of that troubled territory -- the project was condemned by Secretary of State Condoleezza Rice during a recent trip to India. "We have communicated to the Indian government our concerns about the gas pipeline cooperation between Iran and India," she said on March 16 after meeting with Indian Foreign Minister Natwar Singh in New Delhi. The administration has, in fact, proved unwilling to back any project that offers an economic benefit to Iran. This has not, however, deterred India from proceeding with the pipeline.
Japan has also broken ranks with Washington on the issue of energy ties with Iran. In early 2003, a consortium of three Japanese companies acquired a 20% stake in the development of the Soroush-Nowruz offshore field in the Persian Gulf, a reservoir thought to hold 1 billion barrels of oil. One year later, the Iranian Offshore Oil Company awarded a $1.26 billion contract to Japan's JGC Corporation for the recovery of natural gas and natural gas liquids from Soroush-Nowruz and other offshore fields.
When considering Iran's role in the global energy equation, therefore, Bush administration officials have two key strategic aims: a desire to open up Iranian oil and gas fields to exploitation by American firms, and concern over Iran's growing ties to America's competitors in the global energy market. Under U.S. law, the first of these aims can only be achieved after the President lifts EO 12959, and this is not likely to occur as long as Iran is controlled by anti-American mullahs and refuses to abandon its uranium enrichment activities with potential bomb-making applications. Likewise, the ban on U.S. involvement in Iranian energy production and export gives Tehran no choice but to pursue ties with other consuming nations. From the Bush administration's point of view, there is only one obvious and immediate way to alter this unappetizing landscape -- by inducing "regime change" in Iran and replacing the existing leadership with one far friendlier to U.S. strategic interests.
That the Bush administration seeks to foster regime change in Iran is not in any doubt. The very fact that Iran was included with Saddam's Iraq and Kim Jong Il's North Korea in the "Axis of Evil" in the President's 2002 State of the Union Address was an unmistakable indicator of this. Bush let his feelings be known again in June 2003, at a time when there were anti-government protests by students in Tehran. "This is the beginning of people expressing themselves toward a free Iran, which I think is positive," he declared. In a more significant indication of White House attitudes on the subject, the Department of Defense has failed to fully disarm the People's Mujaheddin of Iran (or Mujaheddin-e Khalq, MEK), an anti-government militia now based in Iraq that has conducted terrorist actions in Iran and is listed on the State Department's roster of terrorist organizations. In 2003, the Washington Post reported that some senior administration figures would like to use the MEK as a proxy force in Iran, in the same manner that the Northern Alliance was employed against the Taliban in Afghanistan.
The Iranian leadership is well aware that it faces a serious threat from the Bush administration and is no doubt taking whatever steps it can to prevent such an attack. Here, too, oil is a major factor in both Tehran's and Washington's calculations. To deter a possible American assault, Iran has threatened to close the Strait of Hormuz and otherwise obstruct oil shipping in the Persian Gulf area. "An attack on Iran will be tantamount to endangering Saudi Arabia, Kuwait, and, in a word, the entire Middle East oil," Iranian Expediency Council secretary Mohsen Rezai said on March 1st.
Such threats are taken very seriously by the U.S. Department of Defense. "We judge Iran can briefly close the Strait of Hormuz, relying on a layered strategy using predominantly naval, air, and some ground forces," Vice Admiral Lowell E. Jacoby, the director of the Defense Intelligence Agency, testified before the Senate Intelligence Committee on February 16th.
Planning for such attacks is, beyond doubt, a major priority for top Pentagon officials. In January, veteran investigative reporter Seymour Hersh reported in the New Yorker magazine that the Department of Defense was conducting covert reconnaissance raids into Iran, supposedly to identify hidden Iranian nuclear and missile facilities that could be struck in future air and missile attacks. "I was repeatedly told that the next strategic target was Iran," Hersh said of his interviews with senior military personnel. Shortly thereafter, the Washington Post revealed that the Pentagon was flying surveillance drones over Iran to verify the location of weapons sites and to test Iranian air defenses. As noted by the Post, "Aerial espionage [of this sort] is standard in military preparations for an eventual air attack." There have also been reports of talks between U.S. and Israeli officials about a possible Israeli strike on Iranian weapons facilities, presumably with behind-the-scenes assistance from the United States.
In reality, much of Washington's concern about Iran's pursuit of WMD and ballistic missiles is sparked by fears for the safety of Saudi Arabia, Kuwait, Iraq, other Persian Gulf oil producers, and Israel rather than by fears of a direct Iranian assault on the United States. "Tehran has the only military in the region that can threaten its neighbors and Gulf security," Jacoby declared in his February testimony. "Its expanding ballistic missile inventory presents a potential threat to states in the region." It is this regional threat that American leaders are most determined to eliminate.
In this sense, more than any other, the current planning for an attack on Iran is fundamentally driven by concern over the safety of U.S. energy supplies, as was the 2003 U.S. invasion of Iraq. In the most telling expression of White House motives for going to war against Iraq, Vice President Dick Cheney (in an August 2002 address to the Veterans of Foreign Wars) described the threat from Iraq as follows: "Should all [of Hussein's WMD] ambitions be realized, the implications would be enormous for the Middle East and the United States.... Armed with an arsenal of these weapons of terror and a seat atop 10 percent of the world's oil reserves, Saddam Hussein could then be expected to seek domination of the entire Middle East, take control of a great portion of the world's energy supplies, [and] directly threaten America's friends throughout the region." This was, of course, unthinkable to Bush's inner circle. And all one need do is substitute the words "Iranian mullahs" for Saddam Hussein, and you have a perfect expression of the Bush administration case for making war on Iran.
So, even while publicly focusing on Iran's weapons of mass destruction, key administration figures are certainly thinking in geopolitical terms about Iran's role in the global energy equation and its capacity to obstruct the global flow of petroleum. As was the case with Iraq, the White House is determined to eliminate this threat once and for all. And so, while oil may not be the administration's sole reason for going to war with Iran, it is an essential factor in the overall strategic calculation that makes war likely.

TERRORISM AND INDIA

Land of Mahatma that is  India has been facing the problem of insurgency and terrorism in different parts of the country. For the purpose of this column, insurgency has been taken to mean an armed violent movement, directed mainly against security forces and other government targets, to seek territorial control; terrorism has been taken to mean an armed violent movement directed against government as well as non-government targets, involving pre-meditated attacks with arms, ammunition and explosives against civilians, and resorting to intimidation tactics such as hostage-taking and hijacking, but not seeking territorial control.

India has faced exclusively terrorist movements in Punjab and Jammu and Kashmir , bordering Pakistan, and part insurgent-part terrorist movements in the northeast, bordering Myanmar and Bangladesh; in Bihar, bordering Nepal; and in certain interior states like Andhra Pradesh, Madhya Pradesh  and Orissa that do not have international borders.

India has also faced terrorism of an ephemeral nature, which sprang suddenly due religious anger against either the government or the majority Hindu community or both and petered out subsequently. Examples of this would be the simultaneous explosions in Mumbai on March 12, 1993, which killed about 250 civilians, and the simultaneous explosions in Coimbatore, Tamil Nadu, in February 1998. Tamil Nadu has also faced the fallout of terrorism promoted by the Liberation Tigers of Tamil Eelam in Sri Lanka [ Images ] in the form of attacks by LTTE [ Images ] elements on its political rivals living in the state and in the assassination of former prime minister Rajiv Gandhi [ Images ] in May 1991.

India had also faced, for some years, Hindu sectarian terrorism in the form of the Anand Marg, which, in its motivation and irrationality, resembled to some extent the Aum Shinrikiyo of Japan. The Marg, with its emphasis on meditation, special religious and spiritual practices and use of violence against its detractors, had as many followers in foreign countries as it had in India. Its over-ground activities have petered out since 1995, but it is believed to retain many of its covert cells in different countries. However, they have not indulged in acts of violence recently.

Causes

The causes for the various insurgent/terrorist movements include:

Political causes: This is seen essentially in Assam and Tripura. The political factors that led to insurgency-cum-terrorism included the failure of the government to control large-scale illegal immigration of Muslims from Bangladesh, to fulfil the demand of economic benefits for the sons and daughters of the soil, etc.

Economic causes: Andhra Pradesh, Madhya Pradesh, Orissa and Bihar are prime examples. The economic factors include the absence of land reforms, rural unemployment, exploitation of landless labourers by land owners, etc. These economic grievances and perceptions of gross social injustice have given rise to ideological terrorist groups such as the various Marxist/Maoist groups operating under different names.

Ethnic causes: Mainly seen in Nagaland, Mizoram and Manipur due to feelings of ethnic separateness.

Religious causes: Punjab before 1995 and in J&K since 1989.

In Punjab, some Sikh elements belonging to different organisations took to terrorism to demand the creation of an independent state called Khalistan for the Sikhs. In J&K, Muslims belonging to different organisations took to terrorism for conflicting objectives. Some, such as the Jammu & Kashmir Liberation Front, want independence for the state, including all the territory presently part of India, Pakistan and China. Others, such as the Hizbul Mujahideen [ Images ], want India's J&K state to be merged with Pakistan. While those who want independence project their struggle as a separatist one, those wanting a merger with Pakistan project it as a religious struggle.

There have also been sporadic acts of religious terrorism in other parts of India. These are either due to feelings of anger amongst sections of the Muslim youth over the government's perceived failure to safeguard their lives and interests or due to Pakistan's attempts to cause religious polarisation.

The maximum number of terrorist incidents and deaths of innocent civilians have occurred due to religious terrorism. While the intensity of the violence caused by terrorism of a non-religious nature can be rated as low or medium, that of religious terrorism has been high or very high. It has involved the indiscriminate use of sophisticated Improvised Explosive Devices, suicide bombers, the killing of civilians belonging to the majority community with hand-held weapons and resorting to methods such as hijacking, hostage-taking, blowing up of aircraft through IEDs, etc.

Certain distinctions between the modus operandi and concepts/beliefs of religious and non-religious terrorist groups need to be underlined, namely:

Non-religious terrorist groups in India do not believe in suicide terrorism, but the LTTE does. Of the religious terrorist groups, the Sikhs did not believe in suicide terrorism. The indigenous terrorist groups in J&K do not believe in suicide terrorism either; it is a unique characteristic of Pakistan's pan-Islamic jihadi groups operating in J&K and other parts of India. They too did not believe in suicide terrorism before 1998; in fact, there was no suicide terrorism in J&K before 1999. They started resorting to it only after they joined Osama bin Laden's [ Images ] International Islamic Front in 1998. Since then, there have been 46 incidents of suicide terrorism, of which 44 were carried out by bin Laden's Pakistani supporters belonging to these organisations.

Non-religious terrorist groups in India have not resorted to hijacking and blowing up of aircraft. Of the religious terrorists, the Sikh groups were responsible for five hijackings, the indigenous JKLF for one and the Pakistani jihadi group, the Harkat-ul-Mujahideen (which is a member of the IIF), for one. The Babbar Khalsa, a Sikh terrorist group, blew up Air India's Kanishka aircraft off the Irish coast on June 23, 1985, killing nearly 200 passengers and made an unsuccessful attempt the same day to blow up another Air India plane at Tokyo. The IED there exploded prematurely on the ground. The Kashmiri and the Pakistani jihadi groups have not tried to blow up any passenger plane while on flight. However, the JKLF had blown up an Indian Airlines aircraft, which it had hijacked to Lahore [ Images ] in 1971, after asking the passengers and crew to disembark.

All terrorist groups -- religious as well as non-religious -- have resorted to kidnapping hostages for ransom and for achieving other demands. The non-religious terrorist groups have targeted only Indians, whereas the religious terrorist groups target Indians as well as foreigners. The Khalistan Commando Force, a Sikh terrorist group, kidnapped a Romanian diplomat in New Delhi [ Images ] in 1991. The JKLF kidnapped some Israeli tourists in J&K in 1992. HUM, under the name Al Faran, kidnapped five Western tourists in 1995 and is believed to have killed four of them. An American managed to escape. Sheikh Omar, presently on trial for the kidnap and murder of American journalist Daniel Pearl in Karachi in January last year, had earlier kidnapped some Western tourists near Delhi. They were subsequently freed by the police..

Non-religious terrorist groups in India have not carried out any act of terrorism outside Indian territory. Of the religious terrorist groups, a Sikh organisation blew up an Air India plane off the Irish coast and unsuccessfully tried to blow up another plane at Tokyo the same day, plotted to kill then prime minister Rajiv Gandhi during his visit to the US in June 1985 (the plot was foiled by the Federal Bureau of Investigation), attacked the Indian ambassador in Bucharest, Romania, in October 1991, and carried out a number of attacks on pro-government members of the Sikh diaspora abroad. The JKLF kidnapped and killed an Indian diplomat in Birmingham, England [ Images ], in 1984. In the 1970s, the Anand Marg had indulged in acts of terrorism in foreign countries.

None of the non-religious terrorist groups advocate the acquisition and use of Weapons of Mass Destruction. Of the religious groups, the Sikh and the indigenous Kashmiri terrorist groups did/do not advocate the acquisition and use of WMD. However, the Pakistani pan-Islamic groups, which are members of the IIF and which operate in J&K, support bin Laden's advocacy of the right and religious obligation of Muslims to acquire and use WMD to protect their religion, if necessary.

The Sikh terrorist groups did not cite their holy book as justification for their acts of terrorism, but the indigenous Kashmiri groups as well as the Pakistani jihadi groups operating in India cite the holy Koran as justification for their jihad against the government of India and the Hindus.

The Sikh and the indigenous Kashmiri groups projected/project their objective as confined to their respective state, but the Pakistani pan-Islamic terrorist groups project their aim as extending to the whole of South Asia -- namely the ‘liberation' of Muslims in India and the ultimate formation of an Islamic Caliphate consisting of the ‘Muslim homelands' of India and Sri Lanka, Pakistan and Bangladesh.

The Sikh terrorist groups demanded an independent nation on the ground that Sikhs constituted a separate community and could not progress as fast as they wanted to in a Hindu-dominated country. They did not deride Hinduism and other non-Sikh religions. Nor did they call for the eradication of Hindu influences from their religion. The indigenous Kashmiri organisations, too, follow a similar policy. But the Pakistani pan-Islamic jihadi organisations ridicule and condemn Hinduism and other religions and call for the eradication of what they describe as the corrupting influence of Hinduism on Islam as practised in South Asia.

The Sikh and indigenous Kashmiri terrorist organisations believed/believe in Western-style parliamentary democracy. The Pakistani jihadi organisations project Western-style parliamentary democracy as anti-Islam since it believes sovereignty vests in people and not in God.

Religious as well as non-religious terrorist groups have external links with like-minded terrorist groups in other countries. Examples: The link between the Marxist groups of India with Maoist groups of Nepal, Sri Lanka and Bangladesh; the link between the indigenous Kashmiri organisations with the religious, fundamentalist and jihadi organisations of Pakistan; the link between organisations such as the Students Islamic Movement of India with jihadi elements in Pakistan and Saudi Arabia; and the link between the Pakistani pan-Islamic jihadi organisations operating in India with bin Laden's Al Qaeda and the Taliban .


Religious as well as non-religious terrorist groups draw moral support and material sustenance from the overseas diaspora. The Khalistan movement was initially born in the overseas Sikh community in the UK and Canada and spread from there to Punjab in India. The indigenous Kashmiri organisations get material assistance from the large number of migrants from Pakistan-occupied Kashmir, called the Mirpuris, who have settled in Western countries. The Marxist groups get support from the Marxist elements in the overseas Indian community.

Funding

The following are the main sources of funding for terrorist and insurgent groups:

Clandestine contributions from Pakistan's Inter-Services Intelligence.

Contributions from religious, fundamentalist and pan-Islamic jihadi organisations in Pakistan.

Contributions from ostensibly charitable organisations in Pakistan and Saudi Arabia.

Contributions from trans-national criminal groups, such as the mafia group led by Dawood Ibrahim  who operates from Karachi, Pakistan.

Extortions and ransom payments for releasing hostages.

Collections -- voluntary or forced -- from the people living in the area where they operate.

Narcotics smuggling.

The funds are normally transmitted either through couriers or through the informal hawala channel. Rarely are funds transmitted through formal banking channels.

Sanctuaries

Religious terrorist organisations have their main external sanctuaries in Pakistan and Bangladesh, while non-religious terrorist organisations look to Nepal, Bhutan and Myanmar. Some northeast non-religious terrorist groups also operate from Bangladesh, while certain religious groups get sanctuary in Nepal.

Since 1956, Pakistan has been using its sponsorship of and support to different terrorist groups operating in India as a strategic weapon to keep India preoccupied with internal security problems. Before the formation of Bangladesh in 1971, the then East Pakistan was the main sanctuary for non-religious terrorist groups operating in India. Since 1971, the present Pakistan, called West Pakistan before 1971, has been the main sanctuary for all Sikh and Muslim terrorist groups.

Pakistan has given sanctuary to 20 principal leaders of Sikh and Muslim terrorist groups, including hijackers of Indian aircraft and trans-national criminal groups colluding with terrorists. Despite strong evidence of their presence in Pakistani territory and active operation from there, its government has denied their presence and refused to act against them. It has also ignored Interpol's notices for apprehending them and handing them over to India.

For some years after 1971, the Bangladesh authorities acted vigorously against Indian groups operating from their territory. This has gradually diluted due to the collusion of the pro-Pakistan elements in Bangladesh's military-intelligence establishment with Pakistan's military-intelligence establishment, the collusion of Bangladesh's religious fundamentalist parties with their counterparts in Pakistan and the unwillingness or inability of successive governments in Dhaka to act against these elements.

In Nepal, Bhutan and Myanmar, there is no collusion of the governments with the Indian terrorist groups operating from their territory. Their authorities have been trying to be help India as much as they can. However, their weak control over the territory from which the terrorists operate and their intelligence and security establishment does not allow for effective action against the terrorists