Saturday, March 5, 2011

138 - Privacy: Numbers Game by Ram Krishnaswamy & Vickram Crishna Source Money Life

Privacy: Numbers Game
July 29, 2010 03:21 PM | 
Ram Krishnaswamy &  Vickram Crishna
Money Life Article

Unique Identity Authority of India (UIDAI) will assign unique numbers to all people in India (‘Aadhaar’ is the brand name chosen by the for its flagship scheme), to serve as a single reference point to help establish identity. We found over 200 articles extolling the merits of the project and gathered them on the blog Rather than reassure, however, they raise several questions about the worth of the project. Ram Krishnaswamy & Vickram Crishna address three key questions in this article—the first in a series that will be published only in Moneylife

The Aadhaar scheme proposes to assign each Indian resident a unique 12-digit number, thus enumerating a Unique IDentity for all. India’s current population stands at around 1.2 billion. In addition, millions of foreigners are temporarily based here. UIDAI has set an initial target of issuing 600 million unique numbers within five years (by 2015) (read more at Aadhaar Articles
This seems an ambitious target, considering the scale and cost (Rs45,000 crore) of the project. Through this series of articles, we will provide the information needed to understand this massive project and its potential consequences for us as Indians and as global citizens.

Q1. Will the intended beneficiaries truly be people who live below the poverty line?

The primary purpose of Aadhaar is avowedly social welfare: dividing wealth equitably. Of course, ‘wealth’ is not really in the picture; India is trying to guarantee everyone the bare minimum needed to live healthily. Benefits in cash or kind are distributed under various schemes, such as the National Rural Employment Guarantee Scheme (NREGS), Sarva Shiksha Abhiyaan, National Rural Health Mission and Bharat Nirman.

One of the problems with such schemes is the difficulty of ensuring that their benefits accrue only to the targeted population—typically, persons living below the poverty line. Such people are easily disenfranchised by an endless cycle of verification of records, ruining the efforts made to ensure fair distribution and causing real delivery rates to falter between 6% and 15%, as estimated by the late prime minister Rajiv Gandhi and others.

With Aadhaar, this problem is expected to be resolved. Aadhaar is a one-time verification system to which all records will be inextricably linked (read more at aadhararticles). With UID, beneficiaries of any scheme can be verified by just checking a few critical details—for instance, name, fingerprints and, now, perhaps, iris scans—in order to quickly confirm their identity. However, largely due to the additional requirement of iris scans to reduce error rates, the per-user cost estimate has shot up from Rs31 to Rs450.

Now, here’s an interesting statement: “The UID will become the single source of identity verification” (read more at aadhararticles). It means that once residents are enrolled, they can use the number in many places—they will be spared the hassle of repeatedly providing supporting identity documents for each service they wish to access.

However, it is pertinent to note that the services that will actually be simplified in the near term by the Aadhaar numbers include: opening a bank account, obtaining a passport, driving licence, etc. The public distribution system (PDS), NREGS and other such public-benefit services have neither budgets nor plans to integrate their systems with Aadhaar referrals.

It seems clear that, after spending a huge amount of money and putting in all this effort, the UID will, in the initial few years, primarily benefit people who access relatively sophisticated and upmarket services.

Q2. Will UID meet the needs of the poor?

If a poor person gets money that is due to him directly in his bank account, he will have no reason to plead with tyrannical local officials or grovel before his elected representatives (read more at aadhararticles).

Sadly, banking in India barely scratches the surface: the total number of bank branches as of March 2002, the latest figures we could find on the Reserve Bank of India’s website, was just over 66,000, and less than half of these were in rural areas which account for around 70% of the population.

A back-of-the-envelope calculation shows that each rural branch would need to service over 22,700 account-holders—clearly beyond their reach in a land where urban customers struggle to get decent and timely banking services from branches which need to cater to only around 9,000 customers each. If money is to be mandatorily disbursed directly into bank accounts of the recipients under various schemes (the process to be simplified using UID), it definitely won’t target the poorest of the poor.

One emerging solution is micro-banking, but micro-banking organisations will need to upgrade their technology considerably to deliver services, if UID referrals are to be included. Micro-banks are also not included within the broad banking framework, meaning that existing security measures ensure that they cannot access clearing-house operations and other such enablers of modern banking.
The upgrade cost is not factored into UID budgets, nor is UIDAI mandated to drive the changes that are needed in the banking system without which the UID referral is irrelevant.

Q3. How will UID contribute to the country’s economy?

This is a big-vision project (read more at aadhar articles) through which government services can be provided, tracked and accounted for, together with enabling a multitude of private-sector products and services that rely on accurate identification of consumers. Various departments, based on their needs, will refer to the UID number. This will help remove duplicate names from their service lists. While this would help clean up lists for NREGS, senior citizen pension schemes, PDS, etc, it may also help clean up benami bank accounts, etc. Informally, the Income Tax Department is known to have projected an additional tax collection of about Rs40,000 crore annually!

These claims may hold, if the scheme were intended to act against the continuing use of unaccounted money for trading. In that case, the target community would only be the economic arrivistes—people who already have enough money to regularly feel the need to spend or acquire it by underhand means. This would include all government officers, their extended families, politicians, businesspeople, agriculturists controlling upwards of 25-50 hectares of land, and so on.

In fact, the projected gains, in terms of enhanced income-tax collection, simplifying transactions with government agencies for cash-related activities and so on, are primarily beneficial to this economically stable or upwardly mobile class.

However, the scheme is sought to be justified on the basis of deliverables to the downtrodden. It is doubtful whether Aadhaar will boost the country’s economy directly or help reduce the outgo on avoidable subsidies; or whether it will provide a combination of these benefits; or whether the true objective depends on who asks the question.

It seems far more likely that the unstated purpose of the scheme is to target the upwardly mobile class, but to do that, all Indian residents will have to be induced, by one means or another, to register themselves ‘voluntarily’.

A closer look at what appeared to be basic questions raises some worries. Next fortnight, we will look at the uncomfortable questions that arise as a result of the technology itself being insufficiently explained, at least in the media.