by Shekhar Chandra
India’s 270 million poor constitute 22% of its population and depend on the government’s subsidies for their welfare. India’s subsidy bill on food, petroleum and fertilizers for the fiscal year 2018-19 has been pegged at ₹2,64,335.65 crore ($41.1 billion). One of the key impediments in implementing a successful welfare program has been the lack of a secure infrastructure to provide the intended beneficiaries with benefits, often resulting in resource leakage. Also, access to welfare services required a person to carry many documents—a difficult task in a country where 26% can’t read or write their names and about 42% are not registered at birth. Historically, these services passed through a range of intermediate actors who were often accused of corruption. In 1985, India’s Prime Minister Rajiv Gandhi said that of the total welfare budget for the poor, only 15% reached the intended beneficiaries, with the rest lost to corruption. Similarly, a 2011 study by the National Planning Commision of India, now known as the NITI Ayog, found that in the public distribution system, only 27 of every 100 cents reach its beneficiaries, with the rest lost in payment of salaries, administrative costs and corruption. In recent years, independent surveys have reported high levels of corruption in the lower levels of bureaucracy responsible for subsidy disbursement for various welfare schemes. No wonder that India stood at 97^th^ out of 176 countries for corruption in the latest ranking from Transparency International (TI), a Berlin-based anti-corruption watchdog.
Reducing discretion in decision making is considered one of the main strategies to limit corruption, as it restricts the ability of officials to extract rent in exchange for providing services, awarding contracts, issuing licenses, etc. This is particularly crucial for a developing country like India, where 26% can’t read or write their names and about 42% are not registered at birth. Thus, many people are unable to use security features like PINs and passwords or understand procedural nuances and can be easily exploited by intermediaries to extract bribes. Furthermore, access to services often required a person to carry many documents, an additional hurdle. In recent years, technological developments have made feasible the use of biometric authentication in lieu of paperwork and intermediaries, offering the potential to not only reduce leakages but also promote wider participation in the financial system.
To increase transparency in delivering welfare services to the poor by leaving no room for middlemen or bureaucratic discretion, the Government of India launched Aadhar in 2009. The Aadhar is a 12-digit unique identification number assigned to all Indians and comprised of biometric and demographic data, collected by a government body created in 2009 for this purpose, the Unique Identification Authority of India (UIDAI). Here is how it works: an individual is randomly assigned a 12-digit unique number, and she then applies for an Aadhar card (free of charge) at a local enrollment center, where her fingerprints, photo, iris scan, and relevant demographic data are collected and stored in a central UIDAI database. When that person wants to access basic government services, she simply needs to give her Aadhar number and place her thumb on a scanner and the service provider can immediately verify her credentials by logging into the government database through a highly-secured network. As of November 2017, the unique number has been assigned to over 1.19 billion people (out of a population of 1.34 billion).
The Aadhar number has helped to reduce duplicate and ghost beneficiaries of the government’s welfare schemes. The removal of false beneficiaries along with intermediaries has helped to lower corruption. A 2014 study led by Professor K. Muralidharan of the University of California San Diego using a randomized controlled trial (RCT) method estimated that the impact of an Aadhar-based payment platform for making social welfare payments in India was clearly beneficial. They conducted the study in the Indian state of Andhra Pradesh, which is using the smart card payment platform in two large national welfare schemes: The Mahatma Gandhi National Rural Employment Guarantee ACT (MNREGA), and Social Security Pensions (SSP). The MNREGA is among the largest workfare programs globally, which employed 46 million out of 247 million households in 2016-17. The SSP programs complement NREGS to provide income support to those rural households who are unable to work. The trial reported that use of the smartcard system yielded reductions in payment leakage (relative to the control group) of 35% for MNREGA payments and 48% for SSP payments, resulting in an average household income increase of 24%. Using these findings, the World Bank extrapolated that these leakage reductions for all Government of India welfare programs could yield savings of \$8-14 billion. While the reduction in leakage of public resources is an obvious benefit of Aadhar for the government, the common people, especially the poor have also been eager to adopt it because now they can receive their wage payments under MNREGA and SSP directly into their bank account using Aadhar identification, increasing their income and eliminating the need to bribe middlemen.
The Aadhar has received many laurels. The World Development Report 2016 from the World Bank stated that “a digital identification system such as India’s Aadhaar, by overcoming complex information problems, helps willing governments to promote the inclusion of disadvantaged groups.” “The system in India is the most sophisticated that I’ve seen,” said Paul Romer, Chief Economist of the World Bank. “It’s the basis for all kinds of connections that involve things like financial transactions. It could be good for the world if this became widely adopted.”
Notwithstanding all the benefits, there have been serious concerns about Aadhar. It has invited criticism for having fewer security features and for its data being at risk of being hacked. Recently, it was reported that Aadhar numbers were available in the market for sale for as low as act$10 on WhatsApp. In the wake of these privacy criticisms, the Government of India has introduced virtual IDs in place of Aadhar. Under this measure, an individual can verify her credentials by using a temporarily-generated 16-digit virtual ID in place of her Aadhar number. Another problem is that the biometric-based system has been feared to lead to exclusion errors, cases in which genuine beneficiaries are denied benefits due to technical problems in Aadhar authentication infrastructure. For example, there have been cases in which fingerprints of elderly people are not easily recognizable. Since these welfare schemes are targeted towards poor households, it is the poor who are likely to be hurt the most by these errors.
Legal challenges to Aadhar have also emerged in recent years, centered around concerns regarding the government’s attempts to make Aadhar mandatory for use of public services like passports, tax filing, mobile connections, drivers’ licences, etc. The original mandate of Aadhar is very open-ended on this, allowing the government to use it in every possible way for “improving governance.” However, this expansion in the use of Aadhar has resulted in many public interest litigation (PIL) cases being filed in the Supreme Court of India questioning the constitutional validity of Aadhar. In January of this year, while hearing such a case on the constitutional validity of Aadhar, the Supreme Court of India hailed Aadhar for providing citizen-centric welfare services to the people efficiently but also cautioned against Aadhar-based profiling or tracking of individuals. Although litigation is ongoing, it seems likely that the Aadhar system will continue to become more integrated into Indian society.
The Indian Aadhar experience shows us that technology can be transformational. While Aadhar has made a promising beginning, proper care needs to be taken in its implementation so that its potential benefits can be realized to help the country’s poor.
Shekhar Chandra is a Ph.D. candidate and 2017 Lawrence Susskind Fellow at the Massachusetts Institute of Technology in Cambridge. He is interested in understanding the political economy of institutions and decisions.