India should seek peace talks with Maoist rebels whose influence has spread to half the country and who threaten to undermine an economic boom, according to an internal report sent to the Government yesterday.

The report, a copy of which was seen by The Times, urges the reversal of the 40-year policy of refusing to negotiate with the Naxalites, as the Maoists are known, until they renounce violence.

It also criticises the Government for treating the insurgency as a law-and-order problem rather than addressing its underlying causes: poverty, illiteracy, unemployment, social injustice and the caste system.

“The first point is to talk to them - we just have to open the lines of communication,” said Santosh Mehrotra, a member of the panel that compiled the report for the Planning Commission, the Government's internal think-tank.

“Point two is that the Government's approach has been so heavily security-centric. That's not the way to go. It has to be walking on two legs - security and development.”

Dr Mehrotra said that the report was sent to the offices of Manmohan Singh, the Prime Minister, and several senior Government members yesterday.

The recommendations mark the first time since the 1980s that the Government has explored the root causes of the Naxalite movement and highlights growing concern about India's unbalanced economic development.

Mr Singh described the Naxalites last year as India's single biggest internal security threat. Officials now fear that the Naxalites have been encouraged by the success of the Maoists in neighbouring Nepal, who won a parliamentary election last month after fighting a decade-long insurgency.

Inspired by Mao Zedong, the Naxalite movement began with a peasant uprising in 1967 in the village of Naxalbari - after which it is named - in the state of West Bengal. Since then it has claimed about 7,000 lives and grown into a force of 40,000 permanent armed cadres and 100,000 militia members, according to the South Asia Terrorism Portal, a research centre based in Delhi.

The Naxalites now control a “Red Corridor”, consisting mainly of dense forest, stretching from West Bengal to the border of Nepal. The group is active in 16 of India's 28 states.

Last year Naxalite violence caused 696 deaths, compared with 678 in 2006, and so far this year more than 220 people have died in Maoist-related violence.

The latest reported deaths came over the weekend when Naxalite rebels killed three policemen in the eastern state of Jarkhand.

The Maoists are also now striking at economic targets, such as an iron ore enrichment plant in the state of Chhattisgarh, where they set fire to more than 50 lorries eight days ago.

Several state governments have responded by supporting local armed vigilante groups, known as Salwa Judum, which means “purification hunt”.

But the report recommended disbanding them, saying that it “delegitimises politics, dehumanises people, degenerates those engaged in their security and above all represents the abdication of the State itself”. In Chhattisgarh, the violence between the two sides had displaced about 100,000 people, many of them from indigenous tribal groups, it said.

The report said that the Government should focus instead on bridging the widening income gap between urban and rural populations, and between upper castes and lower castes or ethnic minorities. “To reduce the anger of the people, it is necessary that those affected should feel they are a part of mainstream Indian society and not an external element to be looked down on by others.”

Some experts on the Naxalites disagreed with the report's recommendations, claiming that development would take too long and security should remain the priority. But Dr Mehrotra said that he hoped the report would prompt the Government to place greater emphasis on development in Naxalite areas, instead of simply trying to crush the rebels.

“I think the tide is turning,” he said.

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