The biggest gap in India is the lack of a capable and accountable State. Politicians and officials pursue personal objectives ranging from laziness to corruption.
Residents are generally not able to effectively demand adequate performance from the State. Resources are wasted, and public goods outcomes are shabby. In the task of constructing State capacity, Aadhaar is an important piece of enabling infrastructure. It makes possible a higher level of performance when re-imagining many government programmes and schemes.
As a testament to the power of the idea, the BJP, which in opposition fought against Aadhaar, is now playing a central role in giving it statutory standing. The Aadhaar (Targeted Delivery of Financial and other Subsidies, Benefits and Services) Bill, 2016 was introduced in Lok Sabha on March 3 and passed on March 11.
The government was so keen on the bill that it convinced the Speaker that this is a money bill, although the bill says that Aadhaar can be used for purposes that go beyond those concerning government expenditure.
The Unique Identification Authority of India (UIDAI), which generates Aadhaar numbers and governs the infrastructure for Aadhaar enrolment and usage, was established by a gazette notification on January 28, 2009. At first, it was an attached office to the erstwhile Planning Commission, and was shifted to the IT Ministry in late 2015. In future, UIDAI will derive its powers from the Act.
The first Aadhaar numbers were issued in September 2010. In the following 5-odd years, roughly 100 crore Aadhaar numbers have been issued. The UIDAI has cumulatively spent Rs 7,252 crore, which works out to about Rs 75 per number issued.
This was the world's largest project in the field of biometric identification, and the engineering and scale up worked out well. The present authors have long argued that the expenditure on building the system are justified by the benefits.
The leadership of Nandan Nilekani, and a small band of experts and civil servants, was vital to these achievements. Rather than building a large workforce, UIDAI contracted other organisations to do most of the last mile work.
The contracted organisations were incentivised to ensure quality of process, and had to pay heavy penalties if they failed to meet the standards. Procurement of services to build the back-end information technology systems posed unique contracting challenges that were overcome by innovative procurement practices while remaining within the ambit of government procedure.
UIDAI emerged as an important technology standards setting body, building towards industry-standard application programming interfaces (API) that can be used by all actors. For example, the micro-ATM standards were co-developed by UIDAI to ensure that the technology used by banking agents is robust.
How does all this work help? From 2004-05 to 2012-13, subsidies rose sharply from 12.38 to 23.43% of non-interest expenditure of the Central government.
From the early 1980s, we have been concerned about leakages in government subsidy programmes. A 2005 study found that 58% of grains under Public Distribution System did not reach the beneficiaries.
There are two key insights into the problem of subsidies. Any system that gives benefits without proper identification is vulnerable to leakages to ghost and duplicate beneficiaries. Any two-price system, where there is a subsidised price and a higher market price, incentivises diversion of resources. The key tool for addressing this problem is linking of bank accounts with Aadhaar numbers.
Once such accounts are opened, scheme benefits can be transferred directly to them. This direct transfer can minimise the problem of ghost and duplicate beneficiaries, and also enable removing the two-price system by transferring the subsidy amount and letting people purchase from the market. In 2013, the government launched the direct benefit transfer programme to complete the puzzle.
On March 31, 2015, Rs 46,293 crore had been sent directly into accounts under 35 schemes (scholarship schemes, social assistance schemes, MGNREGS etc) and the LPG subsidy. The government has estimated annual savings of Rs 12,700 crore arising out of the direct transfer of LPG subsidy.
Direct transfer for kerosene subsidy is being scaled up to 26 districts. Direct transfer for food subsidy is also underway in union territories, and could be further scaled up. A pilot programme for direct transfer of the fertiliser subsidy was announced in the budget.
Direct benefit transfers based on Aadhaar-based identification will block multiple payments to one person. In 2012, Justice K S Puttaswamy (rtd) and another petitioner filed a public interest litigation in the Supreme Court, contending that biometric data should not be collected without authorisation from Parliament.
Subsequently, several other cases were filed, and they were linked to the Justice Puttaswamy case. On September 23, 2013, the Supreme Court issued an interim order saying that no person should suffer for not getting the Aadhaar card, regardless of circulars that make it mandatory. Once the bill is enacted, Aadhaar could become mandatory for obtaining benefits.
Although the preamble to the Bill says it will “provide for efficient, transparent, and targeted delivery of subsidies, benefits and services, to individuals residing in India....”, Aadhaar has wider applications. It can be used, and is being used for various purposes by the government: making different kinds of payments (salaries, wages, fees etc), marking attendance and so on.
Aadhaar has important applications in the mainstream economy, going beyond the narrow use in running subsidy programmes. Any person with Aadhaar number can be registered with a relevant system, and after that, each time that person interacts with the system, authentication can take place. Banks are using Aadhaar to open accounts at a much lower cost than a physical KYC process incurs. Telecom companies are doing the same for mobile connections.
To summarise, Aadhaar is a remarkable story of imagination and execution. An important new public good, in the form of identity infrastructure, has been constructed. Once the law is passed, the all subsidy programmes can be re-engineered using this. More importantly, there will be an opportunity for collapsing diverse streams of payments to poor people into a single income support.
The private sector will also find myriad applications through which productivity can be increased. Alongside this, there are concerns about violations of civil liberties. In a fledgling democracy like India, giving too much information to the government is fraught with danger.
There are risks that the government can use information and the power of IT systems to reduce freedom. This requires strong checks and balances. A first important milestone will be an encompassing privacy law which restrains both government and private persons from misuse of information.
(The writers are researchers at the National Institute for Public Finance and Policy, New Dehi; Views are personal)