and
>A large portion of India’s economy is informal, and entirely cash based AND also below the taxable slabs - this is OK.
50% of India's GDP is from the "informal" sector, and it employs something like 90% of Indians. So it's not just a "large portion". It is the majority. And it is this very informal sector that demonetization targeted so to formalize it. FDI makes a very small portion of GDP growth in India.
>And as current reports show - All of that money is back in circulation - so the banks are back to square one.
The money is back in circulation after people paying at least 50% tax if their cash was unaccounted for, but could range up to 200% penalty if the accounting was particularly shady. Which is why you see such a high deposit rate. People would rather see 50% of their cash than nothing.
So "all" that money going back into the economy makes sense. Now the government has actually account of what is going on.