Aadhaar repackaged

The Cabinet’s decision to amend multiple laws to allow the use of Aadhaar for a voluntary know-your-customer (KYC) process does not come as a surprise. The government has much riding on that unique identification document to push its agenda of digitisation of the economy. Aadhaar authentication is, without doubt, the fastest and cheapest way to verify the identity of customers for businesses that work with thin margins and a large volume of users, as opposed to conventional methods of verification. The latter involves a visit to the prospective customer’s residence and verifying the documents provided. Easier verification has benefited mobile service providers and digital payment service providers the most; therefore, they stand to be worst hit by the Supreme Court order that effectively prevents them from using Aadhaar for KYC. The ongoing rollout of government programmes for financial inclusion and growth of some digital payment platforms too depends on Aadhaar. The JAM (Jan Dhan, Aadhaar and Mobile number) trinity — proposed in the Economic Survey 2014-15 by the then chief economic adviser Arvind Subramanian to achieve financial inclusion and for transfer of subsidies to the targeted households — has Aadhaar as its foundation. The court’s bar on mobile service providers to collect Aadhaar from customers can have some impact on this model of financial inclusion.

The proposed amendment of the Telegraph Act, the Prevention of Money Laundering Act (PMLA) and the Aadhaar (targeted delivery of financial and other subsidies, benefits and services) Act to allow use of Aadhaar on a voluntary basis is a way to get around the Supreme Court ruling, which cites privacy concerns. While the amended law will not allow service providers to insist on Aadhaar for the KYC process, it will not prevent them from subtly nudging individuals to provide it. Consider, for instance, the process of re-issuance of passports — individuals providing Aadhaar can expect faster processing of their applications. Mobile services providers and payment service providers too could employ such a ploy and get most people to part with their Aadhaar details.

There is no denying that customer-facing businesses need low-cost and efficient means to verify the identity of prospective clients. But the question remains if Aadhaar is the only solution. As the Supreme Court order notes, widespread use of Aadhaar does raise concerns about privacy of individual data in an interconnected world and, more so, because most citizens got coerced into seeding their permanent account number with the Aadhaar, for income tax payments, bank accounts, investment accounts and mobile telephone numbers. The government and UIDAI have been saying that Aadhaar data is well protected. However, there have been ample demonstrations online that an individual’s personal details can be extracted from various sources, using the Aadhaar number. The government therefore needs to find a solution for KYC that will not compromise individual privacy concerns, while making the process of identity authentication easy and cost effective.

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