Their economy is going to take a hit.
It definitely will. But I'm not sure there was any other way around it.
India's corruption is legendary. You all but have to buy houses and other real estate on the black market, because the seller doesn't want to pay the taxes on a legitimate transaction. Which leads to a status quo of well-off families hoarding cash from illegal deals and essentially never paying taxes. There are other countries that are more corrupt, but these tend to be 3rd-world countries without a functioning government. Of any semi-developed country (or of nuclear powers, for that matter), India's economy is massively corrupt. Something had to be done.
Replacing bank notes in this fashion is undoubtedly the nuclear option. But the argument is (and I agree) that anything more gradual would have tipped off many people, who would have found ways to convert their cash to other forms in an effort to perpetuate the black economy. India will be in a lot of pain for the short term, but in the long term they will have a much stronger economy with proper funding for public services. They are never going to fully transition to a developed economy (and enjoy the benefits thereof) with that much corruption.