Why is the Indian Government Suddenly Obsessed with Aadhaar?
“The address is incorrect,” insisted the store manager even though Sudha Duggal tries to argue otherwise. This was the fifth telecom store to reject Sudha a new mobile connection. The same reason was given by the other four too. The explanation baffled her as she has been living in her current address for the past 16 years, giving the same address to all, including government authorities. And she never faced a problem before. However, this time is different. Sudha has not been able to get a number for over a week now, a task which could be earlier done over the internet. Even several personal visits to the stores has failed to convince the telecom companies. After some investigation, it turns out that there is a mismatch in her address as per Aadhaar records and the proof of address (voter ID) she provided to get the connection.
Recently, the government made quoting Aadhaar, the 12-digit biometric unique-ID for Indian residents mandatory to get a new mobile connection. Meaning, Sudha can’t get the connection until her Aadhaar records match with her voter ID details. And guess what the mistake is? As per postal records, her address is her building number followed by the flat number. Aadhaar, on the other hand, recorded the details in reverse: her flat number followed by the building number. Such a trivial human error has made Sudha fall out of the Aadhaar map.
The phone company can not issue her a number until the authorities fix the discrepancy. And going by experience, she knows, such administrative work in India can take anywhere between a few weeks to a few months.
While Sudha can wait, a daily wage worker or elderly whose monthly ration and pension depend on that card, cannot. There have been many media reports stating how biometrics failed in case of workers who handle rough objects that damaged their prints. “The biometric recognition system militates against old people with fading fingerprints or ageing irises,’ pointed out Manjira Khurana, Country Head, HelpAge India, in an editorial she wrote for website Dailyo.in.
In January, an article in Bloomberg quoted an anonymous high-ranking official from the Unique Identification Authority of India, or, UIDAI (body which issues Aadhaar IDs) saying that official statistics record more than 16 lakh authentication failure in a week with errors ranging from biometric data mismatch to demographic details not checking out. Then there are privacy and data breach concerns. Such cases have been brought to the Supreme Court’s notice, however, the decision on them are still pending.
Clearly, Aadhaar as an ID is not foolproof. Yet, the government is showing an incomprehensible urgency to push Aadhaar as a mandatory one.
Sudden Push for Aadhaar
The Lower House of Parliament passed the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Bill, 2016, on 11 March to provide it a legislative backing. This was followed by last minute amendments in the Finance Bill on 21 March 2017, which made Aadhaar mandatory for filing taxes, just 3 months before the deadline. The government also made quoting Aadhaar mandatory for a plethora of other things within a few months---employees provident fund, renewal and validation of permanent account number (unique ID for banking and taxation), mobile connections, buying railway tickets, government scholarship, driver’s licence and car registrations. Criticism poured in immediately on this ‘forceful’ implementation.
Both the Bills, that are now laws, were introduced as ‘money bills’ in the Parliament. This was seen as a sneaky move to bypass the Upper House, where the government is in minority. The government also ignored the fact that the judgment of the Supreme Court with regard to privacy concerns over data captured for the ID is still pending.
The official line of communication, so far on the subject, has been that it is to control black money, kill corruption. While making Aadhaar mandatory for tax returns, Finance Minister Arun Jaitley told the Lower House, “It is necessary to curb tax evasion and frauds.” But these problems are as old as independent India herself. And most certainly the government can not tackle such gigantic issues by just implementing a unique ID program. “Such issues need a much larger package of reforms,” agrees Dr. Sugata Bag, Professor at Delhi School of Economics, University of Delhi. If one links the Aadhaar to the long-term financial inclusion program of the government, it still does not explain the urgency shown to implement it.
Some political analysts are linking this to positive image building tactics. “The present government wants a stamp of being different and has been trying to underscore the fact that they want to depart from the traditional `gradualist` policy implementation approach,” says Dr Sandeep Shastri, political analyst and a professor of political science at Jain University, Bangalore. However, that still does not explain the timing of the implementation.
PM Modi came to power three years ago and Aadhaar wasn’t really his pet project initially. So why, suddenly and specifically now, is he showing a rush to make it mandatory? It seems asking that question first will be the wrong way round to understand the issue.
Where it all begins: Demonetisation
The answer to all that is chaotic in India’s present financial life seems to be demonetisation. On 8 November 2016, PM Modi declared to demonetise two highest-value, Rs 500 and Rs 1000 currency notes, effective immediately. The government’s intention is the same: to stamp out black money, abolish counterfeit currency, decrease corruption, etc.
However, what it created instead is a currency famine in an economy that runs 98% on cash. Short-term cash shortage is a common outcome of demonetisation. One would expect the government to have predicted and prepared for it. However, it did not. Result was a domino effect of disasters.
The banks didn't have enough of the newly designed banknotes on-hand to distribute in exchange for the cancelled notes, and the smaller denominations in circulation were not adequate to run the economy. Also, ATMs were not recalibrated and post office network, which double-up as banks in rural areas, were not optimally used. The above issues were flagged of by a central team in its report submitted to the finance ministry.
Government’s quick solution to tackle the cash crunch was to go digital. A circular released by RBI, the central bank, on 12 November 2016 stated that “the public are encouraged to switch over to alternative modes of payment, such as pre-paid cards, Rupay/Credit/Debit cards, mobile banking, internet banking. All those for whom banking accounts under Jan Dhan Yojana (no-frills account primarily for semi-rural and rural population) are opened and cards are issued are
urged to put them to use. Such usage will alleviate the pressure on the physical currency and also enhance the experience of living in the digital world.”
However, for an economy that is almost 100% cash-reliant, going digital overnight is next to impossible. Even urban India, that is classified as digitally-inclusive, was grappling with it’s effects.There were long ques out outside ATMs that often ran out of cash and remained dry for weeks. But the cities at least had the option of switching to cards or adapting to e-wallets. Worse hit was, and still is, is the hinterlands that lacks basic digital payments infrastructure such as internet, Point-of-Sale (PoS) machines and even basic banking in some cases.
One could only imagine the nightmare it has leashed on the poorest-of-the-poor in the country’s oblivion villages. The national media had reported close to 100 deaths within a month of announcing the demonetisation process.
Cash-Crisis Management via AEPS
Government’s answer to hinterland's cash crunch is Aadhaar-Enabled Payments System, or, AEPS. The Economic Survey of India 2016-17 that was released in end of February, right before the Union Budget, explicitly stated that the impact on the digitally excluded category, affected by cash shortages, can be gleaned via transactions in the AEPS. “There are approximately 350 million people without cellphones (the digitally excluded). Aadhaar Pay, is aimed at this population,” the government document stated.
What makes Aadhaar Pay government’s first choice for rural e-transactions is that it is easy to implement. Cash is in shortage and cards have expensive infrastructure deployment issues such as PoS machines and steady internet connections. E-wallets won’t work where mobile network is erratic or people don’t have smartphones. There is a huge chunk, 550 million, as per The Economic Survey 2016-17, who either have basic phone or do not have a mobile phone at all. Plus, literacy rate is abysmally low in rural India (over a third of the rural population is still illiterate), which according to a study conducted in the Ernakulam district of State of Kerala is a major hindrance for digital banking and transactions.
This is where the AEPS comes in as the least expensive, quick to roll-out solution. The National Payments Corporation of India developed Aadhaar-Enabled Payments System infrastructure on the same frame on which the public distribution system has been functioning for years now. So, the basic system is already in place. As far as adaptability is concerned, it is easy to operate as it uses fingerprint authentication, so even illiterates can transact with ease.
The customer does not need anything, not even mobile or internet, except a bank account linked to Aadhaar number. “It is a huge opportunity for enabling digital transactions as about 99% of adult population is now under Jan Dhan and is Aadhaar-enabled,” says A. P. Hota, MD and CEO of National Payments Corporation of India, the government arm that runs AEPS. For the merchants, they would just need a basic finger-scanning machine that comes with a government subsidy and costs Rs 150 (less than $2.5).
By the end of March all banks were asked to roll-out Aadhaar Pay. SBI (India’s largest public sector bank) and several other banks have already launched the solution. By mid-April, the government has taken a step further by linking Aadhaar Pay to the BHIM mobile app. Now, any merchant with just a cell phone is able to carry out AEPS transactions.“This move will directly cater to about 400 million bank account customers spread across the country whose account is linked with Aadhaar,” adds Hota in a press release.
AEPS Needs Legit Aadhaar
Coming back to the original problem: Why is the government suddenly pushing for Aadhaar so aggressively? The answer definitely is not “to popularise it”. The ID already has 99% of India covered. The answer to that question lies in a 2015 World Bank study on implementation of unique biometric IDs in developing countries.
For AEPS to work, it needs Aadhaar to be success as a nationally accepted ID. Although the unique ID has rural penetration, it lacked legal and regulatory framework. As per the 2015 study, this can be problematic as, for a nation to have a solid national ID programme, one of the primary conditions is having a strong legal and regulatory framework in place. This includes e-transaction laws and government policies mandating participation of the people.
The report had India as a benchmark case and had suggested the same. It noted, “the lack of a comprehensive legal framework is impacting the Aadhaar project negatively”. This explains the government's hurry to pass quick legislations supporting the project and making it mandatory for various services and benefits in such a short time. However, what started as a crisis could be the government's opportunity at giving a jump-start to the bigger goal of financial inclusion. However, simply making Aadhaar mandatory is not enough.
Legislation is not enough…
Rolling out AEPS for the digitally marginalised rural India to manage cash crunch would be mere lip-service if the problems around biometric authentication failure and other technical glitches are not resolved immediately.
As per a December 2016 report by a committee set up by the Ministry of Finance on digital payments, the failure rates on AEPS for interbank transactions were found to be as high as 60%. The Mint, a national business daily reported that, “due to wear and tear of their fingers, rural labourers have failed the biometric authentication. And since iris scanners (another biometric data point captured by Aadhaar) are expensive, have not been deployed widely”. A biometric failure will means people will be denied access to their own existing savings. Even a negligible failure rate is thus not acceptable.
Another issue that needs urgent addressal is data privacy concerns. The World Bank guidelines call the legal framework around data privacy and sharing the backbone of any unique-ID project.
The government did not wait for a verdict from a constitutional bench of the Supreme Court that is yet to adjudicate whether privacy in India is a fundamental right or not. A standing committee of members of parliament had flagged this issue and said, “The enactment of legislation of a data protection and privacy law was a prerequisite for the Aadhaar scheme.” However, the government choose to ignore this observation.
Recently, the government officially acknowledged that personal identity of individuals has been leaked to the public domain. Bhairav Acharya, a cyber-law expert who works at a U.S.-based think tank called New America, was quoted in a Bloomberg article saying one of the key concern with Aadhaar is data theft and misuse.“The app and validation software are insecure, the Aadhaar system itself is insecure, the network infrastructure is insecure, and the laws are inadequate,” he said. Although data breaches are punishable under the Aadhaar Act, 2016 with imprisonment of up to three years, there should be mechanism that it does not happen in the first place. “Any compromise of data would significantly reduce public faith in the system,” notes the World Bank report. Unless the security and cyber-laws are in place, it will be unjust of a state to trade privacy of its citizens even it is for development.