January 22, 2026

It is now becoming increasingly clear that the Indian penchant for jugaad and financial ingenuity has upset government (and of some experts, too) calculations of netting a neat ‘profit’ of anywhere between Rs 3.5 to 4.5 lakh crore from demonetized currency notes that were not supposed to come back into the banking system. It was expected that out of the nearly Rs 15.5 lakh crore outstanding currency notes of Rs 1000 and Rs 500, some 25 to 30 percent would not make it back due to various reasons. This writer also held a similar view. This assessment was based on the fact that with some people holding enormous sums of cash in such notes, it would be impossible for them to put them in the bank with so many restrictions in place and the strict monitoring by the Income Tax department. There was also a general feeling that a large amount of this cash belonged to political parties and politicians, who would find it impossible to ‘convert’.

But with cash ‘mules’, entry operators, commission agents, gold and real estate trade, petrol pumps, hospitals, Jan Dhan accounts , advance payments to staff and others and conniving bankers entering the fray, the assessment seems like going for a toss. It now seems that nearly all of the banned currency will find its way back into the banking system. Hence, the government should now change track and try and discover the cash trail and pinpoint the sources that have used illegitimate means to convert their cash. It may sound tough but with advanced data mining in place, along with cash trails left by bank or post office deposits, there are means to catch the culprits. India is full of people gloriously living beyond their means if their tax returns are to be taken as the indicator of their incomes. Now is the time to catch these looters and make them pay their dues to the nation. But care must be taken to avoid inspector raj and undue harassment of genuine tax payer.

That things are going awry is clearly visible from huge amounts of new currency being found during raids and proof of conniving bankers coming up. For instance, if Rs 10 cr in new currency is found in a raid, it is clear that it was amassed with the help of crooked bank staff. Otherwise, at the restriction of Rs 50000 per week withdrawal from current accounts, it would take one more than 38 years to total up Rs 10 cr. It also shows that putting restrictions is not the way forward as it leads to increased corruption. People must be allowed to do whatever they wish to in their bank accounts. To catch them, checks must be put in place to red flag suspicious transactions. For instance, if someone does not deposit or withdraw more than Rs 25000 ever and suddenly does a transaction of Rs 200000, it should be flagged and explanation sought from the person. This is just an example. There are many such checks that can be put in place in the maze of financial sector that will alert the tax department if someone makes out of the way transactions. Once such checks are in place and reported correctly, they will act as a deterrent to financial jugglery and jugaad.

There are reports that doctors and lawyers have already jacked up their fees to account for the higher incomes they would have to report in their tax returns. A Delhi lawyer has been raided three times and every time huge amount of both banned and new currency notes has been found in his premises. This is another leakage that should be plugged. Maybe, the tax returns of certain people should be scrutinized for the last few years to determine how much they cheated the country. Based on deposit of banned notes in their accounts, lakhs of new tax payers can be identified and brought under the tax net. Of those already paying taxes, an upward revision in their reported incomes is also possible. The Election Commission has said that out of the 1900 registered political parties in the country, more than 400 hundred have never fought elections and are likely to be conduits for converting black money. The government should focus on electoral reforms next, covering election funding – where all donation above Rs 1000 should mandatorily be through banking channels with the name and address of the donor – and election spending must be brought up to realistic levels. State funding is not the answer. Politicians or their relatives must not be allowed to set up cooperative banks, which again are conduits of changing black to white. Instead, banking services must be taken to rural areas through rapid expansion of branches. One urban branch license should be given only if the bank opens 5 rural branches. Other ways of bringing banking to within 3 kilometres of all villages must be looked into.

The biggest benefit of demonetization is the cash trail the bank deposits of banned notes will leave. Till now, this cash was either used in the genuine economy in sectors where cash transaction rule due to circumstances, in the parallel economy to hide transactions, by hawala operators to move money from one place to another, by terror outfits to fund their nefarious activities, by trades such as real estate and gold to hide the real value of transactions or plain or simply stored in gunny bags and other assorted places for lending and future use. Now, they are in the banks. A cash trail has been left behind. Operators will obviously try to take huge sums to put them back to such uses. The tap must be left open, but strict monitoring must be kept on such transactions. That is the only way to nudge India towards being a less-cash economy. Restrictions will breed more corruption and should be avoided.