Recently, the Supreme Court cautioned the government not to make Aadhaar mandatory for citizens to access benefits. In other words, the absence of an Aadhaar number should not disqualify anyone from availing his rightful benefits. This is a welcome move because it forces all stakeholders to reflect on what is going wrong with the Direct Benefits Transfer initiative. Unfortunately, it also creates public perception that Aadhaar is a flawed idea, and strengthens the inertia against a game changer. What we need is more debate on what needs to be fixed, rather than junk the concept completely. For, to slow down Aadhaar issuance now would be akin to throwing the proverbial baby with the bathwater.
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 UIDAI’s 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