Has Aadhaar Lost Its Foundation?

Last week, the United Progressive Alliance government pulled the plug on an initiative that would have demonstrated the effectiveness of the Unique Identification Authority of India (UIDAI)'s Aadhaar programme, which was to enable the depositing of cash subsidies in Aadhaar-linked bank accounts so recipients could then buy cooking gas or LPG cylinders at market rates.

This apparently because Defence Minister A K Antony complained that his constituents were finding it difficult to get Aadhaar cards and/or open bank accounts and then link them to their LPG connection accounts. Incidentally, the government also announced it was increasing the number of subsidised cylinders a family could get.

The move has been seen as a blow to the UIDAI, which has faced many hurdles along the way, including questions on the very legitimacy of the programme. Despite that, the government had ploughed on. Presumably hoping to make it a strong election plank in which it could argue that it was putting money directly into the voter's pocket. With some reason. The Direct Benefits Transfer to LPG consumer effort had reportedly touched 17 million customers in 291 districts.

Which, thus, brings us to the question: does this reversal mean that Aadhaar is history?

Before one attempts an answer, let's rewind a bit. The unique identity programme was conceived in March 2006 as an attempt to identify below poverty line families. Many inter-departmental and Empowered Group of Ministers meetings followed subsequently. Finally, in November 2008, it was decided that the UIDAI would exist as an arm of the Planning Commission.

It was also decided that the body would also take its own decision on how to build this database. The UIDAI was officially notified in January 2009 by the Planning Commission.

The UIDAI, as it evolved after Infosys co-founder Nandan Nilekani took over in July 2009, built the database and defined its application in the following manner:

First, it said the UIDAI's key role would be to provide a unique identity to every Indian resident. This ID would not have any other role except to establish identity. In contrast, a ration card or a PAN card issued by the tax authorities has an entitlement or a service attached to them.

This identity would be "portable" and "dynamic", which is to say that it would sit on a central server and allow authentication from anywhere. Much like you authenticate yourself with your debit card and PIN number when pulling out cash from an ATM anywhere in the world, though your bank branch is sitting in your home town.

A portable ID means residents need not be enslaved by cards, smart cards and the like. And also because the person's biometric would act as the authenticating element (instead of, say, debit or smart cards) there is greater permanence and accuracy in the "source data". Theoretically, I could carry a friend's ATM card and withdraw cash on her behalf but I cannot replicate her biometric thumbprint.

Another corollary to the UID effort has been to give millions of residents a first-time portable ID. A late 2012 study led by NYU Stern professor Arun Sundararajan and Ravi Bapna of University of Minnesota concluded (from a 0.5 million sample) that Aadhaar was creating a new set of "included" residents. This number, according to them, would be over 25 per cent of residents in India who were really getting an identity for the first time. Thus, inclusion, leading to financial inclusion, could be another outcome of the Aadhaar effort.

UIDAI's second or twin objective was to link with existing applications or departments that would make the identity and its existence useful and practical. As opposed to traditional identities that were "static".

This, too, was split into two or three parts. First, it would serve as a Know Your Customer tool when opening bank accounts, starting new insurance policies and the like. It could also authenticate the receipt of money in micro-ATMs via Business Correspondents who are like a "kirana" store with a credit/debit card swiping device, except that the device would also sport a fingerprint scanner. It could also be used in education to monitor teacher and student attendance across the country, across a life cycle.

Then came the authentication (the order of priority is mine) for delivery of government subsidies and benefits. The government's argument is - or at least ought to be - that if I am giving you a subsidy or a benefit using the taxpayer's money, surely I have the right to ensure I'm giving it to the right person. Whether you are deserving or not is, of course, a different issue.

While there are good chronological reasons for it, one of UIDAI's weaknesses from the early days has been its inability to be tied to an application from start, whether involving subsidy or payments. The approach appears to have been to scale up the ID database and then link to bank accounts, LPG payments and so on. This path has merits but also downsides as the LPG case has shown up.

But fact is that the linking of Aadhaar to different databases, including of bank accounts, will always have, and has had, this risk. Each database has a distinct owner either at the state or central level who usually has little incentive to clean it up. And only a handful of departments, usually led by self-motivated bureaucrats, have actually tried doing so. And many to their credit, such as the public distribution system in some states, have not waited for Aadhaar either.

LPG was actually an easy win, mostly because the oil companies are desperate to slash their subsidy bill. And to tackle misuse - a small state like Goa reportedly saw 100,000 "fraudulent" connections being identified last month thanks to Aadhaar. Finally, because the entire database of LPG consumers of the three oil companies is already computerised. Think of how a bank that is internally computerised can link up to Visa/MasterCard to join a worldwide network of ATMs, as opposed to one that is not.

The LPG opportunity seems lost for now, though the key proposition of Aadhaar as a unique, stand-alone, portable identity still holds. As does its twin objective of authentication of an individual. Other departments or their schemes could continue to piggyback on Aadhaar-linked bank accounts or Aadhaar to identify beneficiaries. The opportunities on the financial inclusion side are as large as they were when the effort was kicked off. The oil companies may return to it too.

There are many holes to plug. Recognise that the approach has always been to throw more money at the problem hoping greater amounts will seep through, rather than plumb the leakages that have sprung in decades of dole-fed existence. Aadhaar, with 570 million IDs now issued, is an attempt at a plumbing solution.

(This article first appeared in Business Standard)