It might be great for India even if the people burn off their black money. Usually, there are 3 concerns with burning money:

What will happen if the people burn their black money?

  1. It presents a cash crisis as you take cash off flow
  2. It is a waste for the system – producing notes cost money
  3. It leads to problems in financial planning as RBI will realize its difficult to know the amount of money is out there.

All the 3 situations are unrelated in the existing case. RBI is in any case likely to burn up the cash and in any case getting these old notes off flow. Since it is printing the new notes and delivering by means of the system it also has much better info what amount money is directed into the system. Therefore, you save the bank authorities sometime in burning it yourself.

In fact, it is offering free money to the govt. Each note you hold is the liability of RBI/Government and when you burn off the liability, you are giving the system. Supposing that govt is making 16 lakh crore value of new notes instead of the 16 lakh crore value of old notes, any amount that didn’t occur into the bank is a gain for the govt.

An individual burning the money, in this case, is probably to be engaged in unlawful actions and getting that individual lose money/have less power, is great for the community.

There will likely be some adverse effect on the society, though. That bad guy may have expended some of that cash on luxurious goods, cars, and hotels. Now, those will find smaller sales and in turn, will decrease the GDP. To make up, the govt can use the additional money it got and spend it on commercial infrastructure investments – educational institutions, medical centers, roadways, and railways. These could more than compensate for the GDP hit got by decreased intake of the bad people.