After the commissioning of the dam, he was moved back to Punjab and then to Jammu and Kashmir as Chief Secretary of those two states, after spending two years at Harvard's Weatherhead Centre for International Affairs It was as Chief Secretary of Jammu and Kashmir that he had to organise the defence of the state during the Bangladesh War of 1971.
His reputation for independence and the fact that he was the only senior bureaucrat of the time visibly seen to be unconnected with the excesses of the Emergency meant that when the Janata government of 1977 took office, he was their choice for Cabinet Secretary.
Soon after he retired, he joined the Centre for Policy Research in New Delhi, where he worked on Panchayati Raj and issues of federalism for some years in the mid-1980s, as Rajiv Gandhi put into motion plans for increasing the degree of administrative power assigned to those village-level organisations.
Mukarji quickly reduced the intensity of counter-insurgency operations and put into place a timetable that would see the end of President's Rule and fresh elections.
After leaving the Raj Bhavan in Chandigarh, Mukarji continued to write on issues related to Punjab; his last major public appearance was as the keynote speaker and chief guest at the Indian Administrative Service's 50th Anniversary celebrations in Mussourie in 1997, where he shocked the assembly by calling, in his speech, for an end to the all-India tenured services, and their replacement by specialised professionals.
He also founded and was the Chairman of the Pakistan-India People's Forum for Peace and Democracy, one of the first organisations to argue for people-to-people or 'third-track' diplomacy as a method of reducing tensions between the two countries.