In Kashmir, war is also business

It's unlikely that the new Italianate villas and Swiss-style chalets sprouting behind gun turrets in the Himalayan foothills here will be on the agenda of the historic peace parley between the leaders of India and Pakistan.

Instead, tomorrow's summit between Indian Prime Minister Atal Behari Vajpayee and Pakistani President Pervez Musharraf will focus on reining in terrorists in the disputed Jammu and Kashmir state, redefining borders, and building confidence between two nations that have a penchant for dancing on the razor's edge of war.

But these palatial homes, say Indian experts, are one indication that the conflict in Kashmir is not just the cost of doing business - it is business.

"I call it 'Kashmir Incorporated,' " says Amitabh Mattoo, a political scientist at Jawaharlal Nehru University in New Delhi, and an expert on the Kashmir conflict. "There are such large vested interests in keeping this conflict going that even with the highest political will, it will not be easy to bring peace to the ground."

Frequently, the integrity of those business interests has been called into question. The list of those who have been indicted for kickbacks, bribe-taking, and war profiteering reads like a who's who of Kashmiri high society - including Kashmiri separatists Syed Ali Shah Geelani and Abdul Ghani Lone, Indian businessman S.K. Jain, and even a few top state bureaucrats and politicians, such as Indian Home Minister L.K. Advani.

With Kashmiri and Indian police uncovering a few dozen new corruption cases each year, the state judicial system is swamped with hundreds of cases, with precious few going to trial and fewer reaching convictions. As a result, money continues to pour into Kashmir from both sides of this conflict, Pakistan and India.

For Messrs. Vajpayee and Musharraf, the implication is clear: Unless they find a way to give these vested interests a reason to support peace, then the uprising that has claimed an estimated 34,000 lives since 1989 will continue, treaty or not.

Naik Ghulam Mohammad, a former militant commander with Hizbul Mujahideen and now a political activist and economist in Srinagar, says some militants will have much to lose if peace is restored. "This turmoil has provided people with money, and not just money, but the authority to dictate. When you have that authority, that power, why should you surrender that status?"

Ineffective tools fighting dirty money

To understand the scale of the problem, and the difficulty in controlling the flow of money into Kashmir, consider the famed corruption case against S.K. Jain. In 1991, India's Central Bureau of Investigations (CBI) filed charges against Mr. Jain, an Indian construction magnate based in New Delhi, and his brother R.K. Jain for allegedly funneling illegal, undocumented cash payments, hawala, to top Indian politicians and others. Basing their charges on personal diaries of the brothers, the CBI charged a broad swath of the political establishment with taking bribes, including then-opposition leaders L.K. Advani, Yashwant Sinha, Sharad Yadav, and other prominent members of Parliament. The diaries also indicated that the Jains had channeled money to Kashmiri separatist groups to keep their interests in Kashmir from being targeted for sabotage.

But in 1997, a high court judge threw out the diaries - the commonplace second set of accounting books - as inadmissible evidence. Prosecutors continue to investigate the Jains and friends for possible violations of the foreign exchange regulations act, which means that the scandal could take years to unravel.

In Urdu, hawala is slang for "in the air," and its mechanics show why prosecution is so difficult, and why militants rely on it. In a typical transaction, an expatriate Kashmiri in the US might buy carpets from a partner in India. Rather than pay the value of these carpets, the buyer may pay two or three times that amount. Because the Indian government can only monitor invoices and not actual bank account balances, the Indian partner can now disburse this money as cash gifts to public officials or business partners - or use it to purchase lavish homes.

The 54-year debate over Kashmir that turned into a full-fledged militancy 12 years ago didn't start out to be about money. For Pakistan, the Muslim-majority state was always destined to be part of the new Islamic Republic of Pakistan, which broke off from India in 1947, after British colonialists departed. For India, Kashmir is "an integral part" of India and its vision of secularism. Even today, after three wars between India and Pakistan and as both nations have achieved nuclear-weapon status, Kashmir remains the chief flash point between the two nations.

But the militancy has created a state now that neither country can truly control. Like civil-war-torn Lebanon and Afghanistan in the 1980s and '90s, and modern Sierra Leone, where smuggled diamonds are a warlord's best friend, Kashmir has become a lawless land of the quick buck. Sometimes the business is the more humdrum variety of corruption, such as illegal cutting of hardwood for handicrafts and export, with the complicity of government bureaucrats. Other times the business is more international and lethal, including extortion, kidnapping, money-laundering, and trafficking in weapons and explosives.

Experts say it is this environment, more than the original religious or ethnic ideology, that now allows Kashmiri militants and foreign mercenaries nearly endless funds for fighting their guerrilla war against India. The situation is exacerbated by the fact that many of the very officials who are charged with controlling the militants are often involved in illegal activities that benefit from war.

"Militancy has become a business," says a senior officer with the Jammu & Kashmir police in Srinagar, who requests anonymity. Local and federal police haven't been able to stop this violent moneymaking for one reason, he adds. "The Indian government hasn't shown sufficient will," and this lack of will may have extended the war far beyond its natural lifespan.

For all the conspicuous wealth, Kashmir is technically one of India's poorest states. For the last decade, it has sustained double-digit unemployment. Its constant state-of-siege environment has scared off foreign joint ventures and tourists.

And while Kashmir is not the only state with a parallel illegal economy, it is the only Indian state that has full economic autonomy, which means that the central government is specifically forbidden from giving financial oversight to state business. It is a perfect environment for money to change hands multiple times, without any opportunity to trace it.

In the dusty concrete courtroom of Judge Hasnei Masodi, an anticorruption judge in Srinagar, he says there are more cases than he can count.

Public works that don't work

Judge Masodi ticks off the case of the 100 million rupee ($2.12 million) loan from the World Bank to clean up Srinagar's polluted Dal Lake. Funds were spent by environmental agencies without any invoices or evidence of actual work performed. There are multimillion-dollar projects for dams that were never built, irrigation canals that were never dug, roadways that were never laid down. Some of the high-level bureaucrats involved in these cases are accused of paying large bribes to get their jobs, says Masodi, and many now live in lavish homes that could not be paid for by the typical 20,000 rupee ($425) government salary.

"One thing is clear: there has been a visible upswing in public corruption during the period of militancy," says Masodi. "The magnitude of it is so big that it becomes nauseating. How can you fight it by yourself?"

Consider the proposal to build a 440-megawatt hydroelectric dam along the Kishanganga River. According to court documents, nearly 150 million rupees ($3.2 million) was allegedly drawn from state bank accounts to fund pre-construction projects, including roads and housing for the dam's staff workers, but none of the work was actually performed.

Yet what started out as a strong case against allegedly crooked bureaucrats, Masodi says, has weakened over time. The case was uncovered in 1992. It took six years to investigate, both because of a lack of police resources and because of the delays associated with war. Now the case is in limbo, between indictment and trial, and some of the government's chief witnesses either have left Kashmir or have lost interest in testifying.

"We have laws, and we have responses," says Masodi. "If you have a quick trial, it sends a message." But swift trials in Kashmir, he adds, are rare.

According to recent police investigations, it's become clear that government corruption feeds both sides of the conflict. Police officials say that building contractors have admitted paying bribes to bureaucrats to get contracts, then paying militants a cut so that neither the project nor the contractors are targeted for sabotage. In many cases, the bureaucrats, militants, and contractors all walk away with Indian government money without the project ever being constructed.

"Pakistan is not funding the militants, we are funding them ourselves," privately grouses one J&K police station chief in Srinagar. "If they burn a school down, let it be burned. If they blow up a building, let it stay that way. If you rebuild it, 20 percent of the money will go to the militants" through corrupt officials, kickbacks, or extortion.

While admitting that corruption plays a role in funding both the militancy and a few corrupt businessmen and officials, some economists and bankers say that Kashmir's odd prosperity has a very legitimate explanation. While 12 years of militancy has killed off the tourism industry, it has actually forced the handicrafts manufacturers and fruit-growers to start exporting, and that has been good for business.

Legitimate benefits for trade

During some of the hottest years of the conflict, between 1995 and 1998, the production of Kashmiri fruits rose from 716,000 metric tons to 900,000 metric tons, bringing in nearly 5 billion rupees ($106.2 million). Similarly, manufacturers of handicrafts have watched their total sales rise from 1.5 million rupees in 1990 to 2.5 million rupees in 1995.

In a strange way, "militancy has helped manufacturers," says Mohammad Yusuf Khan, the dynamic chairman of the burgeoning private Jammu & Kashmir Bank. In the old days, Kashmiris would give their handmade carpets, papier- mache handicrafts, or delicately carved wooden items to middle- men to sell outside of Kashmir. These middle-men would often keep a good hunk of the profits for themselves. Today they are gone, scared off by war, forcing Kashmiris to leave the valley and sell their products themselves. Much of this money ends up in the booming home construction market, or in Mr. Khan's bank.

Indeed, if militancy has been good for Kashmiri handicrafts and horticulture, it's been fabulous for the J&K Bank. At present, the J&K Bank is the only local bank left in Kashmir, after a spate of militant-led robberies and violent extortion-rackets forced J&K Bank's competitors out of business. J&K Bank also suffered from the robberies, but survived because of its size. This left Khan's bank to handle all those profits from carpets and peaches, along with all the paychecks of state government officials, the salaries of Indian security forces, and all the funds for government development projects. For these reasons and others, J&K Bank now ranks among the largest banks in the country, growing at an average of 20 percent each year for the past decade. It now has a total business turnover of 160 billion rupees ($3.4 billion), or three times the size of Kashmir's state budget.

To be sure, the war economy isn't completely dependent on funds generated in the state or even India. In the past 10 years, for instance, the J&K police have recovered from militants an amount of expensive weaponry that simply could not have been sustained by a state economy known for apples, peaches, carpets, and tourism. The list includes 22,000 AK-47 assault rifles, 9,000 pistols, 829 rocket-propelled grenades, 42,000 hand grenades, 22 tons of explosives, and 50 tons of high-tech RDX explosive material.

Much of this weaponry was traceable to militant groups based in Pakistan, paid for by expatriate Kashmiris and Middle Eastern extremist groups. In addition, J&K police report that nearly eight out of the 10 militants they kill or capture these days are foreigners, usually Afghans who have been promised rewards for every Indian soldier or Kashmiri policeman they kill.

With plenty of money coming from Pakistan and the Persian Gulf region to pay their rewards, foreign mercenaries have a strong interest in seeing the conflict continue, no matter what the peacemakers in Delhi and Islamabad are able to achieve in Agra. And with plenty of moneymaking activities available within Kashmir itself, from illegal timber harvesting to drug production to money-laundering and extortion, these militant groups could survive on their own for several years, police officials say, even if they are cut off by their benefactors in the Muslim world.

At some level, most Kashmiris reap some financial benefit from the conflict. With 350,000 Indian soldiers posted in Kashmir, the state has experienced an unprecedented boom in so-called "olive tourism," with soldiers in olive-drab uniforms and their families buying everything from groceries to jewelry to mementos from their Kashmir posting. Militant groups reportedly have begun paying for services as well, paying villagers for food, shelter, and information about troop movements.

But not all Kashmiri businesses have fared well. The hundreds of cozy houseboats tucked away on the banks of Dal Lake have been empty for a decade, as tens of thousands of foreign tourists have stayed away. And while some of the biggest profits in Kashmir have come from the construction industry, local contractors say the key to success in construction seems to be who you know rather than what you have built.

Organizing public will

Overcoming this culture of corruption will require more than just more law enforcement, says Mohammad Yousuf Tarigami, a mainstream legislator who represents the Kulgum district near Srinagar. "The key to forward movement lies in how we can organize against the vested interests."

Mr. Tarigami has filed his own citizen's lawsuit against the state health ministry for a 3 million-rupee land purchase to build a hospital near Kulgum. The money was spent two years ago, but the land hasn't been cleared, the bricks haven't been purchased, the workers haven't been hired, and the hospital remains unbuilt.

"The deputy commissioner of health doesn't know where the money has gone. The government doesn't know where the money has gone," says Tarigami. "On paper, the hospital is there, but on the ground, there is no development."

(c) Copyright 2001. The Christian Science Monitor