Insights Daily Current Events, January 28, 2014

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January 28, 2014

NATIONAL & SOCIAL ISSUES

Unique Identification Authority of India

  • The Unique Identification Authority of India (UIDAI) assigns Unique Identification Number “Aadhaar” to residents of India on voluntary basis
  • The Unique Identification Authority of India (UIDAI) is an agency of the Government of India responsible for implementing the Aadhaar Identities. The agency was established in January-2009, and owns and operates the Unique Identities database. The Unique Identification Authority of India has been established under the Planning Commission
  • The agency provides a unique identification number to all persons resident in India on voluntary basis, but not identity cards. The agency maintains a database of residents containing biometric and other data, and is headed by a chairman, who holds a cabinet rank. Nandan Nilekani is its first chairman since Jun-2009.
  • About Rs. 35 billion (Rs.3,500 crore) was spent on Aadhaar program from beginning (January-2009) till September2013

UIDAI is the Registrar of Identities i.e. it registers, assigns and verifies the unique identities. It is supposed to register two types of unique identities:

  1. Residents of India (called Aadhaar)
  2. Corporate entities (Corporate-UID) for company, bank, NGO, trust, political party etc.
  • Corporate-UID has been provisioned within 12-digit UID number system. Corporate-UID is supposed to produce the similar effect as Aadhaar for corporate entities i.e. identification and traceability of transactions. It is supposed to bring transparency on financial transactions, donations; and to prevent corruption, money laundering, benami transactions (i.e. under a fictitious name), allocation of natural resources like land, spectrum, mining of sand, iron-ore, coal-blocks, etc.
  • UIDAI owns and operates the main database server called the Central Identity Data Repository (CIDR).
  • Reserve Bank of India has planned Aadhaar-linked bank account for all adults of India by January-2016 as its commitment of nation-wide Financial Inclusion.

Rationale and goals

In order to avail social security benefits as well as government-regulated services (e.g. bank account, insurance, mobile SIM, driving license, vehicle registration etc.); compliance to Know-Your-Customer (KYC) conditions are mandatory. The minimum KYC consists of 3 proofs:

  • Proof of Identity (name with face photograph),
  • Proof of Age (date of birth or estimated age),
  • Proof of Residence (presently staying).

Provide social security benefits

Aadhaar-platform is aimed at providing social security benefits / subsidies based on eligibility thru direct benefit transfer. It provides access and options to rural and poor people. It helps bring transparency and eliminate corruption, leakage and inefficiency.

What is Aadhaar?

  • Aadhaar is a 12 digit individual identification number issued by the Unique Identification Authority of India on behalf of the Government of India.
  • This number will serve as a proof of identity and address, anywhere in India.
  • Any individual, irrespective of age and gender, who is a resident in India and satisfies the verification process laid down by the UIDAI can enroll for Aadhaar.
  • Any individual, irrespective of age and gender, who is a resident in India and satisfies the verification process laid down by the UIDAI, can enroll for Aadhaar.
  • Each Aadhaar number will be unique to an individual and will remain valid for life. Aadhaar number will help you provide access to services like banking, mobile phone connections and other Govt and Non-Govt services in due course.

Aadhaar will be:

  • Easily verifiable in an online, cost-effective way
  • Unique and robust enough to eliminate the large number of duplicate and fake identities in government and private databases
  • A random number generated, devoid of any classification based on caste, creed, religion and geography

Financial Inclusion

Aadhaar-enabled Bank Account (AeBA) is a Basic savings account (zero-balance) where a Debit-card is issued and Aadhaar number is used as the account number. It can be instantly opened (like prepaid bankcard). Transactions operate with fingerprint authentication only; as indicated by Aadhaar-logo on the card. PIN is not issued to zero-balance AeBA because it is aimed at financial inclusion of unbanked, illiterate and rural people. Bankcard operates at micro-ATM and other ATMs equipped with fingerprint scanner. Presently passbook is not issued to these accounts due to infrastructure problem. Transactions like deposit, withdrawal, transfer, and balance-check can be performed. AeBA is used for direct payment of social security benefits such as pensions, scholarships, NREGA wages, healthcare, and subsidy for LPG, kerosene, PDS ration, fertilizers etc.

Generally, a micro-ATM consists of a laptop computer or smart-phone equipped with 2G-internet, fingerprint scanner, receipt-printer, speaker and power backup (solar / battery). It is human-operated by commission agent called Banking Correspondent (BC) so that illiterate customers do not face problems of ATM machine operations. BCs are generally chemist-shops, provision shops or mobile-vans. It is similar to the commission agent model of prepaid mobile phone recharge.

Some banks issue photo-bankcards that are boon to rural people and migrant workers because it works not only as bankcard but also as identity card. RuPay card by Indian payment-bridge NPCI and Saral Money Visa are two prominent AeBA bankcards.

Once bankcards become common in rural areas, then whole India will become a nation of cashless-transactions with higher transparency and accountability.

Aadhaar-enabled Service Delivery

Various financial as well as non-financial services are being made Aadhaar-enabled, called Aadhaar-enabled Service Delivery (AeSD) in phased manner

Aadhaar-DBT

Aadhaar-Direct Benefit Transfer (DBT) is an Aadhaar-enabled financial service used for direct payment of social security benefits into the bank account of the Aadhaar-holder.

An existing bank account can be enabled as AeBA by seeding (linking) it with Aadhaar number. Seeding makes mapping information stored onto NPCI payment-gateway that facilitates the subsidy payment. The seeding helps identify the genuine and eligible beneficiary, and prevents duplicate and non-existent (fake, dead) persons.

Eligibility of beneficiary is applied based on rules and is cross-checked with other related databases which are also Aadhaar-linked. This approach is designed to improve the audit trail, add efficiency; prevent corruption, middlemen and delayed payments; eliminate non-existent, duplicate and ineligible beneficiaries. It results in direct benefit access to the eligible people; and saves multi-billion rupee from corruption annually.

E-governance

Another objective of Aadhaar Number (AN) is to use it as an effective governance tool – to bring transparency, efficiency and weed out the bogus beneficiaries from social security programs e.g. social security pensions, scholarships, public health, NREGA, subsidy on PDS Ration, Kerosene, and LPG etc. Thus Aadhaar is expected to save public exchequer from bogus beneficiaries up to Rs. 1.1 Trillion (Rs. 1100 billion) by the year 2020 as per study report of National Institute of Public Finance and Planning.

In 1980s pointing towards the widespread corruption in social security programs in India, the then Prime Minister Rajiv Gandhi had made a famous statement in Parliament that only 15% of benefits reach the poor people; the remaining 85% are eaten-away by the corrupt officials and middlemen. Similarly, the World Bank Chief said that Aadhaar will help eradicate poverty in India.

The stand-alone databases of social security services cannot interact with each other due to lack of a unique identifier like AN. Thus stand-alone databases do not have ability to detect and prevent fictitious and ineligible beneficiaries. Therefore, AN is aimed at eliminating retail corruption in the public domain which has affected social security programs since independence. In India, about 750 million (60%) people starve every day for at least one meal.

Prevention of corruption

Although Aadhaar can prevent retail-corruption to much extent, yet it is not capable of preventing wholesale-corruption like allocation of coal-blocks, 2G spectrum, mining of Iron-ore, sand, onion hoarding etc. Corporate-UID is required to prevent such wholesale-corruptions and this provision is already inbuilt in UIDAI Number System, yet implementation is pending.

Prevention of identity fraud

Identity frauds such as identity theft (using the identity of another person, dead or alive) and identity document forgery (fake IDs created on fictitious person, also called benami) have been a common practice in India. The scan, super-imposition and color-print functions of ubiquitous printers have made paper-based and plastic card-based frauds much easy. Identity fraud is committed for financial gain or due to compulsion. Identity fraud committed for financial gains are mostly benami companies and benami bank accounts used for bribery and money laundering. Identity fraud committed on compulsions is either due to lack of a person’s own ID documents, or due to the intention of not using one’s own ID.

Existing IDs and problem areas

Traditionally existing IDs in India have been token-based i.e. paper and plastic-based driving license, passport, PAN card, voter ID etc. None of these IDs have the feature of being lifetime digital identity that can be verified instantly in public domain at any time anywhere for uniqueness and real existence. Moreover, as of 2013, only 150 million hold driving license, 50 million people hold passport and 30 million pay taxes, and these are mutually inclusive. These IDs do not qualify the generic all-purpose ID for life. These IDs expire at certain intervals, for various reasons, and need to be re-applied with payment for fresh-issuance or renewal.

  • Ration cards are issued one per family, and every family does not hold one. It is not verifiable online instantly in public domain. It does not help migrant workers when they move to another location. Millions of ration cards are either fake or defunct, yet these are used as ID.
  • Voter ID cannot be issued to a person below 18 years. It is not verifiable online instantly in public domain.
  • Although PAN is issued for the holder’s lifetime, yet it is meant only for income tax payers. It is not verifiable online instantly in public domain. There are only 30 million income tax payers, yet 170 million PANs have been issued.
  • Obtaining a passport is costly and lengthy process, and only 50 million hold it. It is not verifiable online instantly in public domain. Fake passports also exist.
  • The driving license cannot be issued to a person below 18 years. It is not verifiable online instantly in public domain.

UIDAI versus NPR

UIDAI has been mandated to enroll 600 million people in its assigned territory. Similarly, the Census Operations group (under the Ministry of Home Affairs) has been mandated to enroll the remaining 650 million people in its assigned territory under the National Population Register (NPR) program.

Effects

As the public databases are getting inter-linked one by one through Aadhaar Number (AN) in various states (particularly Delhi, Maharashtra and Andhra Pradesh), middlemen and officials in those regions now find difficult to continue with corruption in social security programs like pensions, scholarships, health, NREGA, PDS Ration, subsidized kerosene and LPG.

Ineligible, duplicate and fictitious beneficiaries are getting eliminated from social security programs.

Corrupt people are finding difficult to buy and sell benami land and building (i.e. Under fictitious name), to open and operate benami companies for money-laundering. They are also finding difficult to open and operate benami bank accounts for keeping criminal proceeds. Tax-evaders are finding difficult to evade taxes, and impersonation and proxy are getting difficult to commit due to online biometric validation.

Criminals and terrorists are getting detected and tracked through inter-linked databases of mobile phone numbers, bank account numbers and travel documents. Illegal immigrants are similarly detected and tracked through these databases. Records are becoming accessible to police from any state of India. It is getting difficult to obtain new driving licenses and arms license from another state, once one is impounded in another state.

Impedance:

Pending bill

The Union Cabinet headed by the Prime Minister of India has cleared the UIDAI Bill-2010 on 08-Oct-2013. It is expected to be tabled in Parliament during winter session.

The Supreme Court of India passed an Interim Order on 23-Sep-2013 that no public services such as LPG be denied to public due to lack of Aadhaar.

Privacy concerns

India has a law called Information Technology Act 2000 that protects, together with other laws, all types of information including the Aadhaar data from theft and misuse

 Aadhaar is the biggest anti-corruption platform

1.    Aadhaar Enabled Bank Account (AEBA).
2.    Aadhaar Payment Bridge (APB)
3.    National Payments Corporation of India.
4.    Direct Benefit Transfer

  • Trident Group became the first corporate to use Aadhaar Payment Bridge (APB) for disbursal of salaries to its employees.
  • The lack of identity gives way to duplication. UID through its detailed database removes duplication thereby avoiding leakages and corruption.
  • APB is a system that facilitates seamless (smooth or without seems or obvious joints) transfer of payments to Aadhaar Enabled Bank Account (AEBA).
  • It is a payment gateway platform created by National Payments Corporation of India.
  • The APB was used for the first time on January 1, 2013, when Direct Benefit Transfer was launched by the Central government for disbursal of entitlements.
  • The purpose is to use Aadhaar as a platform to increase efficiency of benefits and subsides

Overview on Aadhaar Payments Bridge System (APBS): 

A centralised electronic benefit transfer system to undertake direct mandates from accredited bank attached to various government departments for the purpose of disbursing entitlements using Aadhaar numbers

Millions of people are unable to receive the financial benefits in timely and efficient manner.

  • Financial inclusion is expected to be a key application of Aadhaar authentication.
  • To enable same, UIDAI has partnered with various stakeholders including RBI, NPCI, IBA and banks to develop two key platforms:
  1. Aadhaar Payments Bridge (APB) – A system that facilitates seamless transfer of all welfare scheme payments to beneficiary residents’ Aadhaar Enabled Bank Account (AEBA)
  2. Aadhaar Enabled Payment System (AEPS) – A system that leverages Aadhaar online authentication and enables AEBAs to be operated in anytime-anywhere banking mode by the marginalized and financially excluded segments of society through microATMs

Objectives of Aadhaar Payment Bridge System (APBS) 

Aadhaar Payment Bridge Solution (APBS) will be used to

  • Credit disbursements based on UID number,
  • To sub-serve the goal of Government of India (GOI) and Reserve Bank of India (RBI) in  furthering Financial Inclusion by way of processing government disbursement using  Aadhaar number,
  • To support various Schemes like NREGA, Social Security Pension, Handicapped Old Age  Pension etc. of any Central or State Government bodies, to send financial details to the  beneficiary using Aadhaar number.
  • Aadhaar Enabled Payments

What are the benefits of Aadhaar Payment Bridge (APB) System?

  • Eliminates inordinate (మితిమీరిన; usually large, excessive) delays, multiple channels & paper-work involved in the existing system.
  • Transfers benefits & subsidies in a seamless & timely manner and directly into the Aadhaar Enabled Bank Account.
  • Customer not required to open multiple bank accounts for receiving benefits and subsidies of  various social welfare schemes – Customer just need to open one account and seed his/her  Aadhaar number in the bank account to start receiving benefits and subsidies directly into  his/her Aadhaar Enabled Bank Account.

Aadhaar Payments Bridge

APB is a repository of Aadhaar number of residents and their primary bank account number used for receiving all social security and entitlement payments from various government agencies. APB requires using Aadhaar number as the primary key for all entitlement payments. This would weed out all fakes and ghosts from the system and ensure that the benefits reach the intended beneficiaries. This benefit has an even greater ramification as more and more social security programs are moving from in-kind to in-cash subsidies.

APB Process Steps

  • Service delivery agency that needs to make payments to its beneficiaries (such as MGNREGA wages, scholarships disbursement, old age pension etc.) provides APB File containing details of Aadhaar number, welfare scheme reference number and the amount to be paid to its bank (called sponsor bank).
  • Sponsor bank adds bank IIN (Institute Identification Number provided by NPCI to participant banks) to the APB file and uploads onto NPCI server.
  • NPCI processes uploaded files, prepares beneficiary bank files and generates settlement file
  • Destination banks can download the incoming files for credit processing after the settlement file has been processed.

The Report of the Committee on Financial Inclusion chaired by Dr. C. Rangarajan made two important observations:

  • Technology has to enable the banks to go where the customer is present, instead of the other way around.
  • Technology should allow interoperability among different systems adopted by different banks.

AEPS empowers the marginalised and excluded segments to conduct financial transactions (Credit, Debit, Remittances, Balance Enquiry, etc) through microATMs deployed by Banks in their villages.

AEPS Process Steps

Resident provides his/her Aadhaar number; details of financial transaction sought and fingerprint impression at the microATM device.

Digitally signed and encrypted data packets are transferred via Bank Switch to NPCI to UIDAI.

UIDAI processes the authentication request and communicates the outcome in form of Yes/No.

If the authentication response is yes, bank carries out the required authorization process and advises microATM on suitable next steps.

Benefits to Various Stakeholders

Residents

  • Obviates need for multiple bank accounts for different schemes
  • Faster channel for receiving all welfare payments without any middle-men Access to microATM in villages saves bank trips, thus reducing opportunity and access costs
  • Will help in more usage of formal banking system for managing savings and borrowing Online and interoperable architecture of AEPS ensures anytime-anywhere access of bank accounts which can be a boon especially for the migrant population estimated to be 100 million Empowerment of individuals especially women

Government Departments

  • Use of Aadhaar as primary key eliminates ghost beneficiaries and leads to better targeting Sub-serves goal of furthering Financial Inclusion by processing government disbursements through Aadhaar number
  • Reduces time and cost in payment processing Provide electronic audit trail and end-to-end visibility for all payments

Banks

  • Reduces the credit and operational risks in the branchless banking model
  • Enables Banks to rely on BCs to reach the unbanked population, eliminating the need for a physical bank branch or ATM’s in remote areas
  • Will provide an impetus to electronic payments and thus reduce cash management costs
  • Different financial products through microATMs can be an additional source of revenue for banks and for the BC model

RBI

  • Sub-serves goal of furthering Financial Inclusion by processing government disbursements through Aadhaar number Promotes electronification of retail payments through a secure mechanism

Aadhaar and the PDS

The Unique Identification number (Aadhaar) was conceived by the Indian government as a means for residents to clearly and uniquely verify their identity anywhere in the country.

  1. Perhaps the greatest value of Aadhaar for the PDS stems from how it can be easily integrated into the existing infrastructure.
  2. Using Aadhaar solely for identification would enable clear targeting of PDS beneficiaries.
  3. The inclusion of marginal groups, and expanded coverage of the poor through the elimination of fakes and duplicates.
  4. Implementing  Aadhaar-based  authentication  across  PDS would  enable  the  government  to  guarantee  food  delivery to  the  poor.
  5. powerfully streamlining  PDS processes,  an  Aadhaar-enabled  MIS would  make  possible  a  more  transparent, flexible system, and enable the government to fulfill the objective of food security in times of crises.

Areas for PDS reform 

The  Indian  government  and  the  Department  of Food  and  Public  Distribution  have  pinpointed critical  aspects  of the  PDS  that  need  reform,  for the  program  to  function  more  effectively.  These include:

  1. Beneficiary identification and addressing inclusion/exclusion errors
  2. Addressing diversions and leakages
  3. Managing food grain storage and ensuring timely distribution
  4. Effective accountability and monitoring, and enabling community monitoring
  5. Mechanisms for grievance redressal
  6. Ensuring food security

A role for Aadhaar within the PDS

The  following  features  of  the  number  would  be  instrumental  for delivering  food  entitlements to the beneficiary:

  • One  Aadhaar =  one  beneficiary:   Portability in identification:

Aadhaar-based authenticationto confirm entitlement delivered to the beneficiary:

  • Aadhaar-based  authentication to track food grain  movement:

Aadhaar-based  authentication  can  be  implemented  across  the  supply chain,  which  will  enable  governments  to  track food grain  as  it  is  exchanged  between  PDS  intermediaries.  This would curb diversions, and help identify bottlenecks in delivery.

  • Aadhaar-enabled cloud-computing infrastructure:

The use of Aadhaar-based authentication across the supply chain gives governments the opportunity to link such authentication to a cloud-based management information system (MIS) within the PDS.

An Aadhaar-linked MIS would enable the PDS to address broader procurement, storage and monitoring challenges.  Registration  and  procurement  orders  could  be  managed  online,  enabling  decentralized,  and  more  local  procurement  Inventory management  could be streamlined and handled online in real-time. This would also enable the PDS to  implement state wide information systems that link all ration shops in a state, and give  beneficiaries  more  flexibility in  how  they collect  their entitlements,  and  from which  ration shop.

Electronic benefit transfers: Aadhaar authentication at the delivery point   the FPS   would enable governments to transfer entitlements to residents through an electronic system.  Beneficiaries  could  have  an  online  food  account  on  the  PDS system,  which  would  enable  governments  to  directly  communicate  details  of  food  entitlements  to  residents.