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Aadhaar under pressure, but sill moves forward

Thursday 22 November 2012

A panel of senior civil servants has slashed the Nandan Nilekani-led Unique Identification Authority of India’s (UIDAI) INR 50.6 billion (EUR 719 million) plan for enrolling 400 million people for Aadhaar numbers. The panel, headed by expenditure secretary RS Gujral whose approval is mandatory for all such schemes, reduced the plan by 30%, asking the UIDAI to make efficient use of the money (cf. Smart Insights Weekly #12-42).


The panel told the authority to keep its spending within the INR 34 billion (EUR 483 million) allocation by “tweaking its processes, tightening its belt and introducing a fair bit of innovation.” For instance, the authority has been asked to abandon the existing process of sending Aadhaar numbers by Speed Post to each of the 400 million registered individuals. Instead, it has been asked to follow the home ministry-driven National Population Register (NPR) that sends ID cards to all members of a household in a single envelope. But it’s not clear whether the UIDAI can implement this model since it collects and processes biometric data to register each individual separately. An UIDAI official said the authority had been exploring the possibility of using SMS to inform people about their Aadhaar number, wherever possible.


The UIDAI was also told that it was paying too much, INR 50 (EUR 0.71), for each enrollment to its registrars and the cap was lowered to INR 40, or EUR 0.57 (cf. SIW #12-23).


UIDAI officials reported that they had built a database of nearly 250 million residents and generated Aadhaar numbers for about 220 million people. The authority initially had a mandate to enroll 200 million residents, but was allowed to enroll 400 million others after a bitter turf war with the Home Ministry.


In its short life, the UIDAI has seen its fair share of skirmishes (cf. SIW #12-03, #12-06 and #12-27). Its latest skirmish is with an arm of the finance ministry, the Department of Financial Services (DFS), the genesis of which can be traced back to their different models to make payments.


Under the UIDAI model, Aadhaar forms the basis of every transaction. The DFS plan rides on an architecture created by the National Payments Corporation of India (NPCI), which was set up to create a national payments scheme. This National Accounts Clearing House (NACH) can make cash transfers into beneficiary accounts using their IFSC (Indian Financial System Code) and bank account numbers. The IFSC is an alphanumeric code that uniquely identifies a bank-branch participating in the two main electronic funds settlement systems in India: the real time gross settlement (RTGS) and the national electronic funds transfer (NEFT) systems.


A senior official of DFS says, on the condition of anonymity, its thinking is that Aadhaar will take time to reach everyone and that cash transfers can be rolled out without Aadhaar. A senior UIDAI official, who did not want to be named either, describes this as a purely “anti-Aadhaar play”.


Eventually, says M Balakrishnan, COO of NPCI, the Aadhaar payments bridge will be subsumed into the NACH. “This will give the government flexibility to use either Aadhaar or bank accounts to make payments,” he says. However, the UIDAI official argues the DFS-NPCI model does not close the payment loop. “Aadhaar has created a system where biometric authentication at the last mile also tells us the correct person got the money,” he says.


Nonetheless, Aadhaar project is moving forward with Prime Minister Manmohan Singh having launched Aadhaar Enabled Service Delivery, the usage of the Aadhaar identity platform to identify and authenticate residents for delivery of benefits/services by various government or private agencies.


Currently, there are many pilot projects in Andhra Pradesh covering the Public Distribution System (PDS), in Maharashtra for pensions, in Mysore for cooking gas distribution and in Jharkhand for Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) payments, beside other payments, and others (cf. SIW #12-10 and #12-20). Some of them have already yielded good results. For instance, the results of the pilot project of the Aadhaar-based PDS in East Godavari district highlight that the district officials found 30% of savings in the ration in urban areas and close to 20% in the rural areas for the month of September 2012.


The new system prompts the beneficiaries to give their fingerprints in electronic mode, which is traced instantly with that of the Aadhaar data. However, some stores participating in the PDS scheme argued that the installation of biometrics-enabled readers would not yet be efficient as the process of collating data on the consumers/cardholders was still going on.


Nonetheless, the high court has given the green signal to the state government to install biometric systems at all PDS shops. The court, however, asked the Food and Civil Supplies department principal secretary, to consider the representation made to him by the Karnataka State Government Fair Price Shop Dealers’ Association. The association had asked the department to go slow on the installation of biometric machines as not all PDS beneficiaries have been enrolled with Aadhaar. The association had approached the court against the state government order of August 4, 2012 directing them to install biometric readers.


Furthermore, the Reserve Bank of India (RBI) in its second quarter review of Monetary Policy 2012-2013 paves the way for using Aadhaar biometric authentication for making transactions with the help of cards at ATMs and POS terminals more secure. Outlining a roadmap to achieve this objective, RBI said in the policy: “One of the recommendations of the Working Group formed for securing card present transactions was that banks could consider the Aadhaar biometric authentication along with the magstripe as an additional factor of authentication for card present transactions at ATMs and POS terminals”.


However, such ‘magstripe card + Aadhaar’ scheme comes into collision with EMV migration plans (cf. SIW #12-39).


Meanwhile, Aadhaar still represents big commercial opportunities for IT companies. Information technology firm iGate, the company that generates around 80% of its revenue from the US alone, has already announced it will invest US$ 120 million (EUR 94 million) over the next three years to expand its centers and to seize these opportunities by developing new Aadhaar-related technologies for customers in banking, financial services and insurance, mortgage, and pharmaceuticals (cf. SIW #10-19). The company is building a 50-acre campus in Mumbai and a 35-acre residential campus in Pune and expanding the Bangalore campus. The company has around 27,000 employees right now.


iGate added it had built the cash subsidy or transfer system for LPG and done a pilot project. The company now plans to bit for UIDAI tender. Also, the company officials say iGate has a cash reserve of US$ 600 million (EUR 469 million) and it would look at acquisitions and mergers as and when the company requires.