Hindustan Times via Getty Images Finance Minister Arun Jaitley briefs the media after cabinet meeting on August 30, 2017 in New Delhi, India.

Finance minister Arun Jaitley has said the demonetisation exercise last year was not an exercise to confiscate money.

"The objective of note ban was to bring down cash in the economy, bring digitization, expand tax base, and fight black money," the finance minister said at a press conference following the Reserve Bank of India's annual report for 2016-17.

"People with inadequate understanding of how to tackle black money linked note ban with money returned to system," said Jaitley, adding "deposits in banks don't legitimise" black money. "Money has now been identified with its owner."

The finance minister, however, said the post-demonetisation cash squeeze in Chhattisgarh and Jammu and Kashmir is evident in dip in terrorist and separatist activities in the states.

Tackling terror funding was spelt out by Prime Minister Narendra Modi as one of the objectives of demonetisation when he announced the move on 8 November.

"The note ban was not an exercise to confiscate money, the next step will be to cleanse political funding," the finance minister added.