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Last November's fedayeen-style attacks on Mumbai may have reminded the world that India was not immune to terrorism. But few outside the subcontinent are aware that the greatest source of militancy in this diverse country comes not from Islamists but Maoists.

Insurgencies by Naxalites (named after Naxalbari, a town in West Bengal where rural peasants took up arms against oppressive local landowners in 1967) have proliferated over a vast beltway stretching from the forests of Bengal in the north to Kerala in the south.

Astonishingly, there is believed to be a Naxalite presence in one-third of the Indian landmass, or 16 of India's 28 states. Authorities estimate that one-fifth of the nation's forests are under Naxalite control.

In comparison, at the beginning of this year the Taliban in neighbouring Pakistan was believed to control a maximum of 11% of the country, all in the North-West Frontier province and Federally Administered Tribal Area along the border with Afghanistan. Little wonder, then, that the Indian prime minister, Manmohan Singh, recently dubbed the Maoist rebels the "single biggest internal security challenge ever faced by our country".

In contrast, the Economist derided them as "an outmoded ideology" that is "out of keeping with the modern India of soaring growth, Bollywood dreams and call-centres".

Such typecasting – of India's apparent economic dream and the seemingly luddite rebellion opposed to it – is as much a part of the problem as the violence that has embroiled rural India. Vast economic and social disparities between rich and poor persist here despite, and indeed because of, the economic boom of recent times. Although the Indian constitution outlaws the caste system, it still causes much discrimination with, in the words of University of Westminster's Radha D'Souza, the poorest facing "routine everyday violence" by the police.

India's controversial special economic zones, like those in China and other developing nations, have also played a role, causing massive dislocations of communities in the name of giant hydro, mineral or logging projects that benefit powerful local and multinational businesses.

The Naxalites are a product of these traumas. Like the Taliban in neighbouring Pakistan, they capitalise on the latest experiences of generations-old corruption, harassment and nepotism and promise stability, an equitable share of wealth and quick, if brutal, justice.

They are particularly popular among the poorest communities, especially in rural areas such as the remote forests of resource-rich Chhattisgarh where Aboriginal tribespeople have been forcibly "relocated" to make way for mining companies hungry for the iron ore buried under their feet.

Authorities have facilitated relocations like this – even the communist-led government of West Bengal that championed land reforms for the poorest in the late 1970s stands accused of removing peasants to make way for a Tata car factory.

The Naxalites are often the only ones standing up for the dispossessed. Leaders like Koteswar Rao (known as Kishanji) claim their overall aim is to "liberate" the poorest and transform India into a socialist state along the lines of Maoist communism.

Such rhetoric marks the Naxalites out as true insurgents. Like a fledgling state, the rebels administer justice in "people's courts", and raise "taxes" from families and businesses in areas under their influence. Indian authorities say the largest Naxal network, the Communist party of India (Maoist), raised 10bn rupees (£125m) in "taxation" in 2007.

But the Naxalites are far from a united force. Regional rivalries – most broadly split among different political and militant factions – have occasionally led to bloody internecine conflict. As a result, Naxal allegiances typically vary from village to village in every region they are present.

Some Naxal rebels have been guilty of committing wanton atrocities that their critics say prove they are not about liberation but to intimidate ordinary villagers into joining their ranks. During election periods, for instance, Naxalites have threatened to cut off voters' hands. Naxalites are openly hostile to parliamentary politics – they view mainstream communist parties such as those of West Bengal and Kerala states as enemies of India's underclasses.

Others, such as the anthropologist George Kunnath, speak of the movement's positive contributions – the emancipation of indentured "schedule caste" labourers who are otherwise condemned to generations of de facto slavery, greater social equality between men and women, and their promotion of education for all.

Whether or not the positives outweigh the negatives, the government has itself been guilty of excesses.

In Chhattisgarh, government security forces and a vigilante militia known as the Salwa Judum – ostensibly created to protect people against Naxal rebels – have been implicated in atrocities like extra-judicial killings and forcible evictions that have exacerbated the conflict. According to Amnesty International, villagers who complain of police or paramilitary abuse are branded Naxalites to silence them.

Compounding matters, the Indian government looks to be escalating its military presence in affected regions and especially in Chhattisgarh. Since July, it has deployed hundreds of soldiers along with air and paramilitary forces to combat the Naxalites in Chhattisgarh who, in turn, have murdered scores of police personnel.

To his credit, Singh acknowledges that the Naxalite rebellions are at least in part a consequence of decades-old alienation of the poorest owing to discrimination, poverty and harassment. Yet there are no clear signals that the rhetoric is being matched with economic and social policies capable of bridging the social and economic divides between rich and poor. Without that divide there would be no Naxalites.

Gurdian UK / 16 Sept 2009