On 8 November 2016, the Government of India announced the sudden demonetisation of ₹500 and ₹1,000 currency notes, a move presented as a surgical strike on black money, corruption, terror financing, and counterfeit currency. By April 2019, more than two years later, the official data and independent analyses paint a sobering picture. According to the Reserve Bank of India’s annual report released in August 2018, 99.3 percent of the demonetised currency had returned to the banking system, indicating that the measure did not extinguish black money as originally envisaged. While the exercise did accelerate digital payments and widened the tax base marginally in the short term, most economists agree that its impact on the parallel economy has been limited and transitory. The cost, however, was significant: the International Monetary Fund estimated a GDP growth reduction of approximately one percentage point in 2016–17, and millions of informal-sector workers faced severe livelihood disruptions.
The demonetisation episode underlined a broader truth: black money and corruption are not merely problems of unaccounted cash but symptoms of deep structural and institutional weaknesses. Eradicating them requires sustained, multi-pronged reforms rather than one-time shocks. As India moves into the second half of 2019, it is useful to examine evidence-based measures that have been recommended by economists, governance experts, and international organisations over the years.
1. Restoring Faith in the Tax System
Black money essentially represents income on which due taxes have not been paid. One of the primary reasons Indians historically evade taxes is the pervasive lack of trust in public expenditure. Even in 2019, only about 6–7 crore individuals file income-tax returns in a country of 135 crore, implying that less than 5 percent of the population participates meaningfully in direct taxation.
Building trust necessitates radical transparency in public finance. Citizens must be able to track, in real time, how every rupee of tax revenue is spent. Several countries already offer such portals: the United States’ USAspending.gov, the United Kingdom’s “Where your money goes” platform, and Brazil’s Portal da Transparência are successful examples. India has made progress with the Public Finance Management System (PFMS) and the EAT module of the Finance Ministry, but these remain largely government-to-government tools. A citizen-friendly, searchable, project-wise expenditure dashboard at the Central and State levels would be a game-changer. When taxpayers see their money translating into visible schools, hospitals, and roads, voluntary compliance is likely to rise.
2. Transparent Political Funding
Political parties remain one of the biggest sources and users of unaccounted money. A 2018 study by the Association for Democratic Reforms (ADR) revealed that 69 percent of the income of national parties between 2004–05 and 2014–15 came from “unknown sources”. The introduction of electoral bonds in 2018 was intended to bring anonymity to donors while ensuring banking channels, but by April 2019 the scheme had drawn criticism for actually reducing transparency, as the identity of donors remained hidden from the public and even from other political parties.
International best practices suggest that complete disclosure of donations above a reasonable threshold (with strong privacy for small donors) is more effective. Sweden, Germany, and Canada mandate real-time online publication of donor identities for significant contributions. India could adopt a hybrid model: full anonymity for donations below ₹20,000 (as currently allowed in cash) and mandatory disclosure above that limit, coupled with a cap on corporate donations and a National Election Fund for public funding of campaigns.
3. Bringing Political Parties under RTI
In 2013, the Central Information Commission declared that major political parties were “public authorities” under the Right to Information Act because they are substantially financed by public funds. All national parties challenged the order, and the matter remained pending before the Supreme Court in 2019. Bringing parties under RTI would allow citizens to seek information on internal decision-making, candidate selection criteria, and utilisation of the ₹7,000+ crore they receive annually in indirect public benefits (free airtime, tax exemptions, subsidised office space, etc.).
4. A Strong and Functional Lokpal
The Lokpal and Lokayuktas Act was passed in 2013 after nationwide protests led by Anna Hazare. Yet, five years later in April 2019, India still did not have a Lokpal. The selection committee had deadlocked repeatedly, largely because the Leader of the Opposition was not recognised after the 2014 elections. The Supreme Court, in its 2017 and subsequent judgments, repeatedly directed the government to appoint the anti-corruption ombudsman. A functional Lokpal with jurisdiction over the Prime Minister (with safeguards), ministers, and MPs, and supported by an independent prosecution wing, remains a critical missing piece.
5. Recovering Illicit Wealth Stashed Abroad
Estimates of Indian money parked in tax havens vary widely, but even conservative figures run into billions of dollars. India became a signatory to the OECD’s Common Reporting Standard (CRS) in 2016, which enables automatic exchange of financial account information with over 100 jurisdictions starting from 2017–18. By 2019, India had received several batches of data from Switzerland and other centres. However, public information on prosecutions initiated on the basis of this data remained scarce. Speedy investigation, international cooperation under the UN Convention Against Corruption, and the use of “non-conviction-based asset forfeiture” (already available under the Prevention of Money Laundering Act) can help bring back substantial wealth.
6. Robust Protection for Whistleblowers
The Whistle Blowers Protection Act, 2014, exists on paper, but its rules were not notified for years, and the 2015 amendment controversially prohibited disclosures affecting national security, sovereignty, or commercial confidentiality without clear guidelines. Whistleblowers in the Vyapam scam, Commonwealth Games scam, and numerous others have faced intimidation, transfers, or worse. Countries such as the United States (under the False Claims Act and Dodd-Frank Act) and South Korea have demonstrated that strong witness protection programmes, financial rewards, and dedicated whistleblower offices dramatically increase disclosures. India urgently needs an independent Whistleblower Protection Authority with the power to relocate and financially support informants.
7. An Independent Central Bureau of Investigation
The CBI’s image as a “caged parrot” (in the words of the Supreme Court in 2013) persists because it requires government sanction to investigate officers above joint-secretary rank and remains administratively controlled by the Department of Personnel and Training under the Prime Minister’s Office. The 2018 midnight transfer of CBI Director Alok Verma highlighted continuing political interference. The Supreme Court’s 2014 directive in the coal-block allocation case to make the CBI independent through a fixed tenure for the Director and financial autonomy has seen only partial implementation. The Second Administrative Reforms Commission (2007) and the Law Commission’s 277th Report (2018) recommended that the CBI be brought under a statutory framework reporting to Parliament through an accountability commission.
8. Competitive Salaries and Rationalised Incentives for Public Servants
Low salaries relative to private-sector peers remain a commonly cited justification for petty corruption. The Seventh Pay Commission (implemented in 2016) did increase central government salaries substantially, but disparity persists, especially at middle and lower levels and in many States. Periodic, data-driven salary revisions benchmarked against private-sector equivalents, combined with performance-linked bonuses and swift punishment for corruption, have proved effective in Singapore and Hong Kong.
9. Digital Governance and Removal of Discretionary Powers
The most sustainable way to reduce corruption is to minimise human interface and discretionary decision-making. The Direct Benefit Transfer (DBT) system, seeded with Aadhaar and bank accounts, had by 2019 transferred over ₹7.3 lakh crore directly to beneficiaries, eliminating lakhs of ghost entries. Expanding DBT to subsidies, scholarships, and pensions, along with e-procurement (already mandatory for central purchases above ₹10 lakh), online single-window clearances for business, and digitisation of land records (as successfully done in Karnataka and Rajasthan) can shrink the rent-seeking space dramatically.
10. Strengthening Local Governance and Social Audit
Corruption often flourishes farthest from public scrutiny. Gram Sabhas and social audits under MGNREGA have exposed significant leakages but are inconsistently implemented. Empowering third-tier institutions with funds, functions, and functionaries, as envisaged in the 73rd and 74th Constitutional Amendments, and making social audits mandatory and independent across all rural and urban development schemes, would create millions of citizen watchdogs.
India’s battle against corruption and black money cannot be won through dramatic one-off measures alone. Demonetisation demonstrated both the limits of shock therapy and the resilience of the parallel economy. What the country needs in 2019 and beyond is patient, boring, but relentless institution-building: transparency in public finance and political funding, an independent CBI and a functional Lokpal, iron-clad protection for whistleblowers, competitive public-sector salaries, and the systematic replacement of discretionary power with digital, rule-based governance.
These reforms are neither quick nor politically painless, but global experience—from Singapore in the 1960s to Estonia and Georgia in more recent decades—shows that they work. The real question is not whether India knows what needs to be done; it is whether successive governments possess the political will to do it. Until that will is consistently demonstrated, black money and corruption will continue to erode both economic potential and public trust.
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