He said the terrorists in Kashmir were "now under great pressure" and the financial crunch caused by demonetisation and the action taken by National Investigation Agency (NIA) on illegal foreign fundings have checked illegal activities in Jammu and Kashmir in large scale.
Jaitley, who was participating in a television programme, however refrained from making any comment on the standoff between India and China in the Dokalam area near the Bhutan trijunction, just saying "let us have full faith on our security forces".
Jaitley said the country faced two serious threats -- one with respect to Jammu and Kashmir with maximum incidents happening from across the border, and second being the problem of Left-Wing Extremism in central parts of the country.
"Since independence, Pakistan has never agreed that Kashmir is an integral part of India. That has been their unfinished agenda. They tried conventional war. But India's capability was way ahead in the conventional war. The wars of 1965, 1971 and Kargil clearly proved this," he said.
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"There is domination of our forces on the Line of Control (LoC) and the international border and it is difficult for terrorists to cross them," he said at the India TV Conclave 'Vande Mataram'.
To a question about beheading and mutilation of Indian security force personnel by Pakistan, Jaitley said "what happened after that, has been seen by everyone". He was apparently referring to the surgical strike inside the parts of Pakistan Occupied Kashmir after the incident.
Jaitley said the forces were dominating the border with the help of technological tools. "After surgical strikes in September last year, our forces are liquidating militants," he said.
He said the money received by terrorists and other such groups has been squeezed post-demonetisation and there has been the effect of the actions taken by the NIA against foreign funding allegedly used for subversive activities.
"Whenever there was an encounter (earlier), hundreds and thousands would come out to throw stones. Many a times, terrorists would escape under the protection of stone throwers. This is now becoming a history.
"Those who were coming in hundred and thousands, today their number is limited to 20, 30 and 50. For the first time in the history, we have been they have started looting banks," he said.
He said India has been by and large free from the threat of the ISIS. "There may be some isolated or exceptional incidents but there has been no influence in India."
The defence minister expressed concern over some instances of glorifying the acts of terrorists or Maoists.
Referring to shouting of 'anti-India slogans by some in Jawaharlal Nehru University last year, he expressed concern over the association of mainstream political parties with those raising such slogans.
To questions on India's defence production, Jaitley said his ministry was working out ways to boost domestic production for the defence sector.
"We want India to become a global power in defence manufacturing sector, and towards that end, we are encouraging private players to come forward. We will, of course, also continue to strengthen our ordnance factories and defence PSUs," the minister said.