Unique ID : Catalyst for Inclusion
Friday, January 22, 2010
Social inclusion is the promise on which the UPA government came back to power. It is using the Unique ID program to achieve its most important component: financial inclusion
The decision to implement a national identity system is something that is not unique to India. Many countries have done it in the pastwith diverse objectives, and with different levels of success in meeting those objectives. Some of them are social objectives like making certain public services available to the citizens of that country in a seamless manner, and hence, forms part of ensuring good governance.
In that sense, the much-discussed, ambitious Unique ID project of India that is being rolled out by the specially created agency, Unique Identification Authority of India, is not too different. So, the huge media interest that it has generated globally and in India are purely because of the scale and the way the rollout is being envisioned. The appointment in June 2009 of Nandan Nilekanithe ex-Infosys CEO who has been talking about the need to create such a system for a long timeas the head of the agency responsible for implementing the project was one game changing decision. It showed that the government was serious about the rollout. Since then, the Unique ID project has made it into the headlines for the kind of technologies that it is planning to use or the partnership approach that Nilekani has preferred to takeopenly taking a stand that the private agencies, if required, can be entrusted with certain tasks such as storing data and managing certain functions within the enrollment.
But while Nilekani has been following a time honored American tradition of it-is-not-enough-to-do-good-work-you-must-also-talk-about-it, what had probably got missed in the midst of how much money will the government spend and what biometric solutions would be used, is what the government is trying to drive through the project.
The governmentwith Nilekani as the facehas been trying to build this program as its primary platform for financial inclusion. To that extent, it is the UPA governments most important projectit came to power by promising inclusive growth. The Unique ID project has to be seen in that context.
Inclusion Vs Security
While many countries have tried to achieve certain specific, discreet objectives through the creation of national identity systems, it has rarely been used as the fundamental platform to drive inclusion. In fact, many of the goals that national identity systems have pursued have little to do with development, let alone inclusion.
The most important of those non-development objectives that national identity systems have tried to achieve are that of security and immigration. In fact, even in India, the NDA government envisaged the program as primarily one that would address issues of national securitythe main political issue on which the leading NDA partner BJP has contested elections.
In fact, there is some truth in the BJP claim that it was the saffron party that was behind conceptualizing the creation of a new national identity system. It claims that the Congress just stole the idea but slept on it for a long time.
Well, truth is rarely black and white. While it is true that it was the NDA government that had taken the first step on creating a national identity system, its objective was entirely different. Way back in August 2003, an empowered council of ministers, headed by the then home minister LK Advani had agreed to create what it called the Multipurpose National Identity Card (MNIC).
In the Dataquest Annual Award Night 2007, Nandan Nilekani, then co-chairman of Infosys and the chairman of the Dataquest Jury, in his address passionately talked of an urgent need to create a national identity system in India. Most part of his speech was dedicated to this topic
In a press release issued by PIB on 21 August 2003, however, this is what was given as the reason by this group of ministers.
“Illegal migration has assumed serious proportions. There should be compulsory registration of citizens and non-citizens living in India. This will facilitate preparation of a national register of citizens. All citizens should be given a Multi-purpose National Identity Card (MNIC) and non-citizens should be issued identity cards of a different color and design. This should be introduced initially in the border districts or may be in a 20 Kms border belt and extended to the hinterland progressively. The Central Government should meet the full cost of the identity card scheme”.
This recommendation was accepted by the government and immediate steps were taken to launch the pilot project. It was said that the pilot project would not only give an opportunity to acquire efficiency but also help take measures to remove hurdles likely to be faced while the MNIC Project is taken up on a country-wide basis for a population of more than 100 crore, the press release noted.
The Unique ID system that Nilekani is trying to build is neither compulsory nor is it being introduced in the border districts first. To be sure, it was not alone in articulating national security and border control as the primary objective behind creating a national identity system. Many countries (see the following story, Look Global, Act Local) have done that.
In fact, a URL, http://mnic.nic.in, which was created for the purpose is still there and says it is under construction. BJP pointed it out in its IT vision documentpart of its 2009 poll manifestoand accused the UPA government of sleeping over it.
Whether the UPA was sleeping over it or working on it in the background is anyones guess. But when UPA came out with its own charter, it chose its issuenot BJPsas the objective of the program. And it had come to power on the promise of social and financial inclusion. The UID program of today is targeted at achieving financial inclusion.
Financial Inclusion: The Problem
India has more than a billion people. At least about 20% of them live in areas that has difficulty in getting physical access to. According to a report Financial Access 2009 by CGAP, an independent policy research center under the aegis of World Bank created with the objective of advancing financial access to poor globally, in India there are only 680 bank deposit accounts per 1,000 adults; there are only 124 bank loan accounts per 1,000 adults; while there are about seven commercial bank branches per 100,000 population.
However, India stands far better than many developing countriesespecially its neighbors in South Asiawhen it comes to ratio of rural to urban branches. The rural-urban ratio is comparable to developed markets, according to the report.
That means the issue is not just physical access. It is something beyond that.
It is in the late 80s that the then prime minister Rajiv Gandhi had famously remarkedfrom every rupee that the Center spends on welfare schemes, only 15 paise reaches the intended beneficiaries. When he made that statement, India was an economy that was lagging behind the world in almost every social and economic parameter. In other words, this was one of the many problems that the country was grappling with.
We have seen dramatic changes since then. In some areas, India has not only moved up fast, it has emerged as the role model for the rest of the world. Take access to a telephone. When Rajiv Gandhi took over, it was not there for the vast majority of people. Today, how the reach and usage of telecommunications has spread in this country is a global case study.
Unfortunately, the aspect that Rajiv Gandhi was referring to has still not changed significantly. Despite a lot more wealth being available, we, as a nation, still do not have ways and means to make a larger set of population get the benefit of that and actively participate in the process of wealth creation.
How often do we hear of stories that a person continuing to get pension twenty years after his death or a eighteen year old getting freedom fighter pension? While the government still has to deliver its pensions and such obligations, even if it is still not sure about the recipients, the commercial institutions have shied away from actively pursuing the opportunity, despite the realization that the next opportunity actually lies in the bottom of the pyramid. That is a challenge a national identity system can go a long way in addressing, if it is implemented properly. And that is exactly what Nilekani is up to.
August 21, 2003: A Parliamentary Consultative Committee attached to the Home Ministry under the Chairmanship of then Deputy Prime Minister, LK Advani approves creation of a Multipurpose National Identity Card with a note that there should be compulsory registration of citizens and non-citizens living in India
December 4, 2006: The Prime Minister appoints an empowered group of Ministers (EGoM) to collate two schemesthe National Population Register under the Citizenship Act, 1955 and the Unique Identification Number project of the Department of Information Technology. The EGoM was also empowered to look into the methodology and specific milestones for early and effective completion of the Project and take a final view on these.
December 11, 2007: In the Dataquest Annual Award Night, Nandan Nilekani, then co-chairman of Infosys and the chairman of the Dataquest Jury, in his address passionately talks of an urgent need to create a national identity system in India. Most part of his speech was dedicated to this topic.
November 4, 2008: The Empowered Group of Ministers (EGOM) headed by the external affairs minister, Pranab Mukherji, with ministers of home, IT & communications, Law and Panchayatiraj as members, approves the establishment of a Unique Identity Authority, under the Planning Commission.
January 28, 2009: Planning Commission constitutes and notifies formation of the Unique ID Authority of India
March 14, 2009: The Bharatiya Janata Party releases its IT vision document, which talks of a Multipurpose National Identity Card (MNIC), with national security being the key driving factor behind it, to be rolled out in three years. It said it would amend the Citizenship Act, 1955, to combine the offices of the Registrar General of the Census of India and that of the UIAI to set up a Citizenship Regulatory Authority of India (CRAI).
June 25, 2009: Nandan Nilekani appointed Chairman of UIDAI, with the rank of a cabinet minister
July 23, 2009: Nilekani formally takes over as the Chairman of UIDAI
August 12, 2009: The first meeting of Prime Ministers Council of UID Authority that deliberated on the broad direction and powers of UIDAI
October 22, 2009: The Government of India issues orders constituting the Cabinet Committee on UID Authority on. It is headed by the Honorable Prime Minister and consists of the minister of finance, agriculture, consumer affairs, food and public distribution, home, external affairs, law and justice, communications and information technology, labour and Employment, HRD, rural development and Panchayati Raj, housing and urban poverty alleviation, and tourism. The Deputy chairman, Planning Commission and chairman, UIDAI are special invitees.
Jan 6, 2010: In a meeting with Nilekeani, banks and telecom companies agree to jointly work on a revenue share model to roll out mobile banking. Nilekani said UID project will leverage this database to start with. Reiterates that the 18 months deadline (from August 2009) would be met. First set of numbers to be issued in February 2011.
So, if Prahalad can be credited with making the commercial entities look at the path less traveled, if successful, Nilekani would be remembered as the man who removed the obstacles on that path. An effective Unique ID system will remove the need for further activities
The Inclusive Approach
While Nilekani knows the problem and has done a great job of explaining it to the world, understanding the problem does not necessarily lead to a solution. Take cost alone. According to a paper by the UIDAI, the enrollment of each resident may cost between Rs 20 and Rs 25, leading to a potential total enrollment cost of Rs 3,000 crore. Then, there is speed of enrollment. The authority has promised that by February 2011, the first set of numbers would be issued.
So, says the paper, the enrollment strategy will explore the possibility of various beneficiaries funding the enrollment cost. To start with, he has turned to banks and telecom companiesbanks who would help directly in the financial inclusion process and telecom companies, which thanks to the ubiquity of cell phones, have penetrated to areas where no other commercial agencies have gone.
The UIDAI has been proactive in getting them work together and with the authority. What else would explain the UIDAIs involvement in brokering a deal between banks and telecom companies to create a base of “business correspondents” that will be used to offer banking services?
In the first week of January, in a meeting that was attended by the representatives of the Indian Banks Association (IBA), the national bankers lobby and representatives of telecom operators and UIDAI chief, Nilekanithe two sides finally agreed on the terms of revenue sharing resulting in a declaration by IBA chief K Ramakrishnan to announce that the 1.3 mn vendors of the telecom operators would be recruited as banking correspondents and will carry devices that would operate as micro ATMs.
“We dont know how many real people are getting it (benefits), how many are duplicates, whether payments are made on time…Our view is that you can address these flaws in a distribution system if you can have a million-plus banking correspondents with a UID-enabled cell phone and fingerprint reader,” said Nilekani.
The idea, to be sure, is not novel. The Reserve Bank of India allowed the practice about four years back. In a circular issued in January 2006, RBI permitted banks to use post offices and specialized microfinance institutions (MFIs), including nonprofit organizations (NGOs), cooperatives, and for-profit companies, as retail agents. In fact, the term business correspondents was used by RBI in the same circular.
CGAP, in the same report, Financial Access 2009 notes that Although ICICI Bank and several other private-sector banks had already used MFIs as retail agents for disbursing and collecting loans, since the circulars issuance, there has been virtually no experience with deposit collection. Thus far, specialized MFIs claim not to see the advantage of handling deposit collection on behalf of banks.
So, the partnership approach that Nilekani is pursuing could be a win-win for all: the banks by spreading their customer base; the telcos by offering them new revenues, and the government by proceeding on its goal of inclusion.
However, the public private partnership approach has not always worked the way they have been intended to work. The common service centers (CSCs) under the NeGP are a case in point.
In hindsight, many analysts have pointed out that though they were based on PPP model, it was implemented more as a vendor-seller model rather than a partnership model and left many unanswered questions for the last guy in the loop: the local entrepreneur.
We hope the UIDAIs approach of getting the buy-ins of stakeholders before the actual work begins is a great step. And if it works, it would be the biggest achievement of the UPA governmentironically, executed by someone who is not from the political parties.
But then, in 1991, the then prime minister had roped in a professional to repair the countrys fledging economy at that time. The progress is in front of everyone to see.
Good Luck Mr Nilekani.