Take any militant group -- the alleged illegal taxation is central to insurgent sustainability, it was complained during the stint of R N Ravi as the Governor.
This led to serious differences in the corridors of power.
Who says there is no money?
A Congress Finance Minister had commented during the peak of militancy and chaotic killings in the 1990s. It was also the era when the 9th Finance Commission recommendations were implemented and the finding pattern - that is days of golden goose from Delhi's North Block and Planning Commission - were changed.
After 1996 -- New Delhi had Non-Congress Prime Ministers supported by Congress and the region had Congress chief ministers across except Tripura. The Congress netas would scream and complain but things could not be changed much. Paradoxically, the 9th Finance Commission was created by the Rajiv Gandhi government.
But elsewhere the economy was booming. We mean the Shadow Economy or Parallel fiscal system.
About two decades later, the Enforcement Directorate (ED) under the BJP-led NDA "identified operations" involving at least 299 accused persons, including 76 Chinese entities, in money laundering schemes worth Rs 455.37-Rs 500 crore.
Sources say these operations "utilize shell companies" with dummy directors and multiple bank accounts to layer transactions and conceal the origin of funds.
The story goes this way -- All insurgent factions -- including the 'most potent' as claimed by both sides - insurgents as well as Delhi - could sustain the operations through a well-organized, large-scale system of illegal taxation.
One such eminent group with support system in Kohima and yet throwing up hurdles before peace negotiators have (had) annual budget through extortion and allied activities -- estimated between Rs 200 to Rs 250 and at times even Rs 300 crore per year.
There are formal “budget sessions” and levies are fixed through a modern budgeting processing.
Former military officers would cough up that "the very informal nature of hawala transactions" combined with word-of-mouth messaging and minimal record-keeping requirements make things attractive for laundering proceeds from drug trafficking, arms smuggling, and extortion activities.
Within the geographical landscape of Nagaland state - there is no illicit cultivation no doubt. But there is no hesitation to do 'drug business' as such by the courageous men and at times even women.
Over 9o-95 per cent of registered informal workers understandably earn less than Rs 10,000 monthly.
This means there are strictly "limited opportunities" in the formal economy.
The state's unemployment rate in urban areas is 240 per 1,000 people, according to a study.
At the national level the data is quite milder -- an average of 67 per 1,000 people.
That also means the economic distress will make shadow economy participation attractive.
The shadow economy’s impact on Nagaland’s legitimate economic development is profound. The state’s formal economy contributes modestly to India’s GDP, with a GSDP heavily reliant on agriculture (30.7%) and services (55.6%), while the industrial sector contributes only 10.97%.
The importance of Economic forces in breaking states (or countries) or holding them together is quite significant. Veteran Naga leader S C Jamir told me around 2o19-2020 that the Nagas will do well to realise that the Economy has brought western European countries 'together' despite they fighting a hundred wars among themselves. On the other hand the 'economic failure' of the Soviet Union had splintered their country.
The militant groups employ a multi-layered approach to extract funds from their own people including government servants, teachers and business people. The non-Naga Indian citizens (a dwindling numbers) also pay. The non-Naga but (possibly Bangladeshis) have their numbers increasing every month or so. But they do not mind to cough up 'taxes of extorton demands' for the time being.
A flat levy on government salaries, originally 24% of one month’s pay, later reduced to around 15 to 20 per cent annually under public pressure are remitted through 'official payrolls of various departments'.
One insider report says -- business and commercial Levies are extracted from traders via demand letters (or verbal messages) each spring.
The taxes are imposed at multiple stages—entry tax on trucks, warehouse (godown) tax, wholesale and retail levies—often amounting to 5–7 successive charges per consignment.
Reports from Manipur said (around 2024) that the road-building firms in Manipur’s Tamenglong, Senapati, Ukhrul, and Chandel districts have been compelled to pay “project tax”.
The NIA, ED and CBI often work hard for months. They have also documented cases where state department payments—purportedly for development—were channelled to ultra leaders' accounts.
These could be Rs 15-20 crore through some departments alone.
The threat of extortion and multiple taxation makes legitimate business operations economically unviable, pushing economic activity underground or driving it to neighboring states especially Khatkhati-Diphu belt of Assam.
The shadow economy’s impact extends beyond immediate economic effects to create deep socioeconomic distortions. The normalization of illegal taxation has created a culture where extortion is accepted as routine.
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| Jorhat: A key upper Assam hub |
Financial Infrastructure and Money Laundering
To conceal and repatriate extorted funds, the armed groups utilize 'front Accounts' that is the 'Bank accounts' in the names of senior operatives and their relatives - wives, children and even 'girl friends'.
Some underground key executives and their spouses hold from Rs 5 to Rs 5 crore in movable assets including mutual funds and insurance policies.
The Cross-border cash routes through Myanmar, Bangladesh, and Southeast Asia support transfer of bulk cash and procurement of arms, tying extortion revenue to broader insurgent logistics.
Implications
Agencies in Delhi say -- These erode State Legitimacy. This fosters cynicism about the functioning power and willingness to govern on the part of legitimate governments. There is a subsequent withdrawal of public consent.
People would develop anti-Govt and even anti-India sentiment.
In 2010-12; it was reported to Home Minister P Chidambaram that 'Diversion of construction funds' also inflated costs.
Moreover, the fear of reprisal stifles reporting.
Despite ED and NIA actions leading to chargesheets and provisional attachments, convictions are limited, it is complained.
Disrupting this parallel fiscal system through effective financial intelligence, asset seizures and protection for whistle-blowers may be desirable.
But these may be pipe dreams !
ends
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