It is important to remember that Aadhaar was envisioned essentially as an instrument of personal identity. The drive toward financial inclusion has changed the frame dramatically. In a rather short time, Aadhaar became the common thread weaving a host of independent interventions such as account opening, DBT payments, LPG subsidy, etc, by virtue of its potential for accurate and secure authentication of a person. All this happened without sufficient debate in Parliament over its usage. Meanwhile, amidst the frenetic rollout of all these initiatives in parallel, the lines got blurred with the UPA government stipulating Aadhaar, still labelled as voluntary, as a pre-condition to receive state-provided benefits.
Why was the government keen on weaving Aadhaar into the core of its financial inclusion design The simple answer is: scale and viability. The UIDAIs report on Aadhaar-based payment systems estimated that secure electronic delivery of benefits entails a capital cost of over R6,600 crore, and a break-even service charge of 3.14%, based on transfers worth R3,00,000 crore. The only way this could all work was by having a national footprint of Aadhaar-enabled transaction terminals for cash disbursements, even in the unbanked parts of India.
However, while the government was quick to impose Aadhaar on its DBT, numerous gaps in the process were not addressed. The most important challenges being: establishing statutory legitimacy of the UIDAI; articulating the roles of banks and non-banks and the limits of jurisdiction by banking and other regulators; affixing the onus of responsibilities in a bank-led model of financial inclusion; and lastly, defining the commercial model for implementation. As a result, several variants of implementation co-existed for a while and several legal and procedural roadblocks were experienced in rolling out Aadhaar-based payments.
Today, the Aadhaar end of financial inclusion is set: infrastructure and payment bridges and protocols are ready, and have been tested. However, the other critical pieces have not been put in place, especially the cleaning, de-duplication and mapping of numerous beneficiary databases with Aadhaar, a task that must be done by the government departments. The challenges listed below need attention, instead of deliberating whether to put the Aadhaar to sleep.
What needs to be done
* The first step needs to be to recognise the UID as a primary identity document, and accord one institutionwhether the UIDAI or any new entity that combines the NPR and UIDAIthe status of an independent statutory institution and allocate resources under the Consolidated Fund of India.
* The UIDAI should have complete and exclusive accountability over the personal and biometric data capture and processing, which must not be outsourced to private parties, drawing lessons from the Passport Office. Over time, the Passport Office and Aadhaar number can even be issued by one authority.
* The core function of the UIDAI is to collect and archive personal information in safe and encrypted form and issue the UID to any applicant. The UID number is one among several documents to identify a person.
* Aadhaar online authentication for commercial/ financial transactions is different from the core function of issuance and verification of an Aadhaar number. Aadhaar verification must not be made compulsory or the sole/exclusive source of identity to access services or benefits provided by government institutions.
* For real time, online authentication of the Aadhaar number, the role and scope of UIDAI service should be limited to answering session-based queries in real time, returning a binary True/False result, without any obligation or power to share any personal data.
* Authentication service charges should be session-based, with tariffs based on a normative cost-recovery and reasonable profit principles to ensure sustainability and adequate information security standards.
* UIDAI should be liable for any financial losses or damages arising from false positive identification on the UIDAI database against an authentication query. The liabilities should be covered by appropriate insurance and reinsurance on the lines of other banking and financial institutions.
* The cleaning and de-duplication of the beneficiary databases under all schemes need to be accelerated and seeded with the identity numbers, irrespective of whether Aadhaar is used for verification.
The author is with Indicus Centre for Financial Inclusion