This would not affect the small merchants and dealers because they usually don't have excess money lying around. These are people who are making a small profit from their small business.

Under the rule, anyone who is paying their taxes and have done things legally, have nothing to worry about. They can submit all the 500, 1000 rupee bills directly in their account (no limit), if they've paid taxes on it. If they haven't paid taxes on it, they will be taxed in the current financial year but then government will also have the liberty to ask the source of your income which can land you in trouble if you're unable to show a legit source.