uid

When I opposed Aadhaar in 2010 , I was called a BJP stooge. In 2016 I am still opposing Aadhaar for the same reasons and I am told I am a Congress die hard. No one wants to see why I oppose Aadhaar as it is too difficult. Plus Aadhaar is FREE so why not get one ? Ram Krishnaswamy

First they ignore you, then they laugh at you, then they fight you, then you win. -Mahatma Gandhi

In matters of conscience, the law of the majority has no place. Mahatma Gandhi

“The invasion of privacy is of no consequence because privacy is not a fundamental right and has no meaning under Article 21. The right to privacy is not a guaranteed under the constitution, because privacy is not a fundamental right.” Article 21 of the Indian constitution refers to the right to life and liberty -Attorney General Mukul Rohatgi

“There is merit in the complaints. You are unwittingly allowing snooping, harassment and commercial exploitation. The information about an individual obtained by the UIDAI while issuing an Aadhaar card shall not be used for any other purpose, save as above, except as may be directed by a court for the purpose of criminal investigation.” -A three judge bench headed by Justice J Chelameswar said in an interim order.

Legal scholar Usha Ramanathan describes UID as an inverse of sunshine laws like the Right to Information. While the RTI makes the state transparent to the citizen, the UID does the inverse: it makes the citizen transparent to the state, she says.

Good idea gone bad
I have written earlier that UID/Aadhaar was a poorly designed, unreliable and expensive solution to the really good idea of providing national identification for over a billion Indians. My petition contends that UID in its current form violates the right to privacy of a citizen, guaranteed under Article 21 of the Constitution. This is because sensitive biometric and demographic information of citizens are with enrolment agencies, registrars and sub-registrars who have no legal liability for any misuse of this data. This petition has opened up the larger discussion on privacy rights for Indians. The current Article 21 interpretation by the Supreme Court was done decades ago, before the advent of internet and today’s technology and all the new privacy challenges that have arisen as a consequence.
Rajeev Chandrasekhar, MP Rajya Sabha

“What is Aadhaar? There is enormous confusion. That Aadhaar will identify people who are entitled for subsidy. No. Aadhaar doesn’t determine who is eligible and who isn’t,” Jairam Ramesh

But Aadhaar has been mythologised during the previous government by its creators into some technology super force that will transform governance in a miraculous manner. I even read an article recently that compared Aadhaar to some revolution and quoted a 1930s historian, Will Durant. Rajeev Chandrasekhar, Rajya Sabha MP

“I know you will say that it is not mandatory. But, it is compulsorily mandatorily voluntary,” Jairam Ramesh, Rajya Saba April 2017.

August 24, 2017: The nine-judge Constitution Bench rules that right to privacy is “intrinsic to life and liberty” and is inherently protected under the various fundamental freedoms enshrined under Part III of the Indian Constitution

"Never doubt that a small group of thoughtful, committed citizens can change the World; indeed it's the only thing that ever has"

“Arguing that you don’t care about the right to privacy because you have nothing to hide is no different than saying you don’t care about free speech because you have nothing to say.” - Edward Snowden

Special

Here is what the Parliament Standing Committee on Finance, which examined the draft N I A Bill said.

1. There is no feasibility study of the project]

2. The project was approved in haste

3. The system has far-reaching consequences for national security

4. The project is directionless with no clarity of purpose

5. It is built on unreliable and untested technology

6. The exercise becomes futile in case the project does not continue beyond the present number of 200 million enrolments

7. There is lack of coordination and difference of views between various departments and ministries of government on the project

Quotes

What was said before the elections:

NPR & UID aiding Aliens – Narendra Modi

"I don't agree to Nandan Nilekeni and his madcap (UID) scheme which he is trying to promote," Senior BJP Leader Yashwant Sinha, Sept 2012

"All we have to show for the hundreds of thousands of crore spent on Aadhar is a Congress ticket for Nilekani" Yashwant Sinha.(27/02/2014)

TV Mohandas Pai, former chief financial officer and head of human resources, tweeted: "selling his soul for power; made his money in the company wedded to meritocracy." Money Life Article

Nilekani’s reporting structure is unprecedented in history; he reports directly to the Prime Minister, thus bypassing all checks and balances in government - Home Minister Chidambaram

To refer to Aadhaar as an anti corruption tool despite overwhelming evidence to the contrary is mystifying. That it is now officially a Rs.50,000 Crores solution searching for an explanation is also without any doubt. -- Statement by Rajeev Chandrasekhar, MP & Member, Standing Committee on Finance

Finance minister P Chidambaram’s statement, in an exit interview to this newspaper, that Aadhaar needs to be re-thought completely is probably the last nail in its coffin. :-) Financial Express

The Rural Development Ministry headed by Jairam Ramesh created a road Block and refused to make Aadhaar mandatory for making wage payment to people enrolled under the world’s largest social security scheme NRGA unless all residents are covered.


Monday, May 2, 2016

9896 - How Modernizing India’s Payment System can Drive Financial Inclusion

April 26, 2016

By Sean Creehan


India’s heavy reliance on cash has wasted resources and limited financial inclusion, leaving nearly half the population without a bank account. In response to this problem, the government has introduced policies to promote non-cash payments, provide hundreds of millions of new payment-capable accounts to the unbanked, and encourage new technology and innovation throughout the banking sector. These combined policies could have a major impact on economic welfare and financial inclusion in the coming years.

Non-cash Payments can Improve Economic Welfare and Financial Inclusion

Most Indians rely exclusively on cash in daily transactions. Only an estimated 10-15 percent of the population has ever used any kind of non-cash payment instrument, compared to 40 percent of people in countries like Brazil and China. Meanwhile, as of 2014, India’s ratio of currency in circulation outside of banks to GDP was 11.1 percent, higher than other emerging economies like Russia, Mexico, and Brazil (see Figure 1).

This cash reliance makes households vulnerable not only to theft but also inflation, which erodes the value of cash not earning interest in a formal account. It also means their savings are unavailable to fund broader economic activity, as banks can’t lend cash held at home. Additionally, people operating exclusively in cash and without a bank account often face tougher borrowing conditions.

Figure 1: Cash and coins in circulation outside banks (% of GDP)

One way to reduce cash-related economic inefficiencies is to create inclusive non-cash payment systems. These systems provide benefits to a country’s poor citizens across a number of indicators, lowering the cost of transactions and increasing the return on savings. The availability of convenient, reliable, secure, and affordable payments can also introduce the unbanked to formal financial products like loans and insurance, creating synergies with broader financial inclusion goals.
Creating a National Payment System
India’s policymakers have taken steps to address these payment issues. In 2008 the Reserve Bank of India (RBI) established the National Payments Corporation of India (NPCI) to consolidate India’s complicated retail payment systems into a standardized, coherent national network to make transactions easier and cheaper. Since then, the NCPI has initiated multiple reforms, including a national automated clearing house system for payments, the RuPay electronic payment card scheme, the Immediate Payment Service (IMPS) for mobile transactions, national check truncation, and a continuously operational system for remittances (see Table 1). Meanwhile, the government’s rollout of universal identification cards—popularly known as Aadhaar cards and held by one billion Indians—lets any holder be authenticated by the Unique Identification Authority of India (UIDAI) and NPCI. This not only makes it easier for financial institutions to comply with “Know Your Customer” regulations, but also allows the payment system to support the government’s financial inclusion efforts.
Table 1: Recent Developments in India’s Payment System
Date Implemented
Payments Entity/Policy


September 2008
National Automated Clearing House
December 2008
National Payments Corporation of India
November 2010
Immediate Payments Service for mobile payments
February 2012
Online verification of Aadhaar universal identification cards
March 2012
RuPay electronic payment card scheme
July 2012
Aadhaar Payments Bridge System
October 2013
Aadhaar-enabled Payment System
August 2014
National Mission for Financial Inclusion
August 2015
Provisional payment bank licenses
Bringing the Unbanked into the Financial System through Payments
Having established a more robust national payment infrastructure, the Indian government and RBI have initiated policies to attract unbanked citizens to the financial system through payment-focused accounts.
Shortly after taking power in mid-2014, the government of Prime Minister Narendra Modi announced the National Mission for Financial Inclusion (Pradhan Mantri Jan-Dhan Yojana, or PMJDY) and instructed banks to leverage Aadhaar cards to provide unbanked citizens with new accounts and link them directly to welfare benefit payments. The program’s goal is to expand financial inclusion, but its initial strategy targets the provision of convenient payment products to attract India’s unbanked and, more importantly, get them to use their new accounts.
This strategy is most evident in the bundling of PMJDY accounts with the Direct Benefits Transfer (DBT) program, established in 2013 to send benefit payments (e.g. scholarships or pensions) directly to the poor in an effort to reduce the siphoning off of funds by corrupt intermediaries. PMJDY accounts can receive various government subsidies via the aforementioned Aadhaar Payments Bridge System. This bundling highlights the potential synergies of coordinated efforts to improve a country’s payment system and increase financial inclusion. DBT-enabled accounts offer benefits to the unbanked that attract them into the formal system. At the same time, a growing customer base of the newly banked creates positive network effects that make the payment system more useful for all participants (see Figure 2).

Figure 2: Stylized Aadhaar-based payments use cases: Aadhaar Payments Bridge or Aadhaar-enabled Payments System


  1. Previously unbanked open accounts using Aadhaar identification and NPCI’s Aadhaar-enabled electronic KYC system
  2. Government agency initiates Direct Benefits Transfer (APB) or Aadhaar holder initiates payment (AEPS) at participating bank or bank correspondent (“micro-ATM”)
  3. NPCI authenticates payee and beneficiary using Aadhaar IDs for clearing and settlement
  4. Aadhaar holder receives payment at Aadhaar-enabled bank account and withdraws cash at participating bank or bank correspondent (“micro-ATM”)

As of March 2016, the program had already opened 213 million new accounts, a remarkable achievement in under two years, but it remains a work-in-progress. Roughly 29 percent of accounts held a zero balance, in part because the government has not yet fully utilized the DBT program for all welfare payments. The infrastructure to support the new accounts is also still limited, making it less attractive for new PMJDY customers to make daily payments.
More recently, the RBI licensed new specialty payment banks in August 2015 to promote innovation in delivering payment services to India’s unbanked. The new payment banks are backed by five telecommunications ventures, a mobile payments specialist, three conglomerates, the National Securities Depository, and India Post. They have physical and virtual networks in the rural areas where many of India’s unbanked live as well as international experience promoting electronic payments. The RBI expects the payment banks will take advantage of their parent companies’ strength to leverage new technology and innovative strategies.
The payment banks will need to comply with RBI requirements to receive a full payment bank license. Deposits can be placed in checking or savings accounts and will earn interest. This solves the primary problem previously faced by non-bank mobile payment operators: an inability to let customers participate in these new payments networks without linking to a separate bank account.
Challenges and Implications
The addition of these new players to India’s payment system also brings challenges. One open question is how payment banks will compete with the new PMJDY accounts. With more than 200 million accounts opened, many of the previously unbanked will now have access to formal payments and won’t necessarily need a payment bank account. For existing commercial banks facing asset quality problems and significant capital raising requirements, new competition poses risks to future earnings.
Payment operators will confront financial illiteracy and limited awareness among their customers, a common barrier to financial inclusion efforts around the world. The rapid rollout of new payment models also creates additional operational risks for the industry. The new players face an evolving legal environment in the treatment of customer privacy, with the Indian Supreme Court continuing to debate the extent to which non-government entities can leverage Aadhaar numbers to improve the speed and efficiency of payments transactions. Meanwhile, innovative business models have the potential to lead payment banks into unregulated areas, necessitating enhanced supervision by the RBI.
Less Cash, More Inclusion to Come
While 86 percent of transactions in India are still conducted in cash, the share of non-cash payments is likely to increase rapidly due to ongoing reforms. With a national infrastructure in place and undergoing improvement, hundreds of millions of new payment-capable accounts, and a variety of firms entering the sector, the promise of a modern non-cash payment system has arrived—and with it, potential significant advances in financial inclusion for one of the world’s most important developing economies.
A more comprehensive report on this topic was published in Asia Focus. Please see Modernizing the Payment System to Increase Financial Inclusion.

The views expressed are not necessarily those of the Federal Reserve Bank of San Francisco or of the Federal Reserve System.


SEAN CREEHAN is an analyst in the Federal Reserve Bank of San Francisco's Country Analysis Unit (CAU). He monitors financial, regulatory, and economic developments in Asia with a focus on Northeast Asia and South Asia. His research interests include financial inclusion, cross-border capital flows, and financial technology.