Published: November 04, 2010 in India Knowledge@Wharton
An estimated US$20 billion worth of business opportunities over the next decade have begun rolling out in India with the launch of a nationwide program named "Aadhaar," which aims to issue 600 million unique identification numbers, or UIDs, to residents over the next four years.
A massive new market will open up as the Aadhaar UIDs enable hundreds of millions of poor and migrant residents to open bank accounts, get loans and expanded access to jobs, health insurance, mobile phone services and the like, while facilitating the delivery of public services including government programs for school children and the poor. The program also promises to improve the labor market with more efficiency in running pension plans, discouragement of jobseekers with spurious certificates, and improved tracking of attendance and performance for school students.
Large multinational technology and business services firms are looking to sell all manner of equipment, software and consulting services. Some are even planning to set up local manufacturing operations. Government and private sector entities, including banks and insurers, are poised to reengineer their services delivery as Aadhaar will help them identify, track and reach large new sections of the population that were previously underserved or off their radars. India Knowledge@Wharton spoke with executives at the Unique Identification Authority of India (UIDAI), led by Infosys Technologies co-founder Nandan Nilekani, and other experts about the emerging market opportunity.
Challenging the "Poverty Premium"
The UID project would create business opportunities at several levels, according to a report from CLSA Asia Pacific Markets, written by Anirudha Dutta, its deputy head of India research, and Bhavtosh Vajpayee, its head of technology research. "As UID-linked infrastructure expands over the next five years, we envisage a US$20 billion market and estimate that it will create 350,000 new jobs," they say in their report. By the sixth year, they expect the commercial pie to be worth US$10 billion annually.This, they say, could increase to US$20 billion with the "long tail impact" on banks and telecommunication services firms. Dutta and Vajpayee point also to the huge untapped market that the undocumented in India represent. Of a billion-plus people, only 35 million pay income taxes, 70 million have permanent account numbers to pay taxes, 60 million have passports and 240 million have bank accounts, they note. "The resulting poverty premium means the poor pay more (via usurious credit), receive less (thanks to misdirected or misappropriated subsidies) and are even excluded from basic services such as banking."
The business opportunities begin with identifying and verifying the authenticity of potential customers for all manner of services such as banking or mobile phone subscriptions. The UIDAI has kept its task simple, as Nilekani explains it: Issue Aadhaar numbers to enrollees, and provide authentication to whomever needs it. It uses biometrics technology such as fingerprints and iris scans as its identification criteria. It collects enrollees' biometric information through "registrars" it has appointed including all state governments, several public sector organizations, banks and other entities. The registrars are responsible for hiring and training the field staff that will collect the data, each carrying a specially designed kit that includes a computer, iris and fingerprint scanners and a camera. The enrollees' information is sent to the UIDAI, which then runs them through a "de-duplication" process to weed out any duplicate entries to ensure each number is truly unique. To ensure data security and privacy, UIDAI will not release enrollees' data; it will only respond to every request for authenticating an identity with a simple "yes" or "no."
"What is special about this project is the use of today's technology and computing horsepower and biometrics ... for a developmental purpose, to give an ID to a large number of Indians who don't have any papers or an ID, and then lay the foundation for the reengineering of public services," Nilekani says in an interview with India Knowledge@Wharton. "One of the big challenges is [that] we have a nation of migrants -- 120 million migrants out there -- they don't have an ID or their ID is not recognized; they may come from one village in one state and go to another city in another state." The Aadhaar numbers will help track the delivery of government programs such as the public distribution system (PDS) for food or mid-day meals or immunization programs for school children by matching benefits with actual beneficiaries, thereby plugging siphoning of funds or leakages to the private market, as with wheat.
"The whole idea of a subsidy or benefit or entitlement delivery system is it should reach the person it is supposed to reach, so the non-transferability of these is something the government would like to ensure," says R.S. Sharma, UIDAI's director-general. "If something meant for X gets delivered to X, that in itself is a great improvement as it will eliminate the leakage and misdirection of subsidies. For example, in PDS, if you are able to ensure that the food grains meant for X are indeed delivered to X only and nobody else, this will bring in accountability at the last mile of the delivery chain."
The Power to Claim Your Money
Aadhaar will also open up a whole new market for banks and other financial services providers. UID enrollees that don't have bank accounts could have them, thanks to an agreement UIDAI has reached with the Reserve Bank of India that the data collected would meet requirements. "We are telling the banks that we will transfer a single file [to each of them] including the [enrollee's] consent and that we have done the due diligence for it," says Ashok Pal Singh, UIDAI's deputy director-general overseeing the plan for financial inclusion, besides other portfolios. "Banks can do customer acquisition without any cost." (The UID is yet to figure out the best way to apportion these account-opening mandates to banks; it may do that through competitive bidding, Singh adds.)
"The fundamental purpose of a bank account is you are associated with your money -- a demonstrated and verifiable property right over the money you have," says Arun Sundararajan, professor of information, operations and management sciences at New York University's Stern School of Business. "This is probably the most transformational IT (information technology) project we are going to see in our lifetime," says Ravi Bapna, a professor of information and decision sciences at the University of Minnesota's Carlson School of Management, who holds a joint appointment at the Indian School of Business in Hyderabad. He is working on a study of UID's potential with Sundararajan.
As Big as Y2K
The UID is seeing robust interest from providers of equipment, software and other services for both the enrollment process (scanners and cameras, for example) and for financial and other applications, such as micro-ATMs to facilitate financial transactions in rural areas. "We are talking to almost every MNC in the technology area," says Bala Parthasarathy, UIDAI's head of authentications and applications. They include the likes of Microsoft, LG and Oracle, besides an array of smaller, specialized technology firms like U.S.-based biometric technology services firm IriTech and business applications developer Geodesic of Mumbai. In fact, Microsoft co-founder Bill Gates announced at a conference last year that he found the UID project "a great initiative" and wanted Microsoft to be part of it. Parthasarathy, a 20-year Silicon Valley entrepreneur, has taken a break to work on the UID project. He notes that he and other entrepreneurs and corporate executives whom Nilekani has attracted to UID "are here because this is more exciting than anything else we can do in the private sector."
Parthasarathy likens the UID program to the U.S. government's Darpa (Defense Advanced Research Projects Agency), which laid the foundations of the Internet in the early 1970s. Darpa at the time launched research and applications development around communication protocols for networked computers. The reengineering of banking, PDS, government-run pension and social security programs and educational infrastructure will be on a scale similar to that of the Y2K conversions at the turn of the century, says Tushar Vashisht, manager, project strategy at UIDAI; he has taken a break from an investment banking job in Singapore to work on his current project.
UIDAI has designed and published specifications for the collection, storage and authentication of the data, and for equipment and software including iris scanners and cameras, as well as for business applications like microfinance payments. Interestingly, it has insisted on open-source technology for UID applications to the maximum extent possible. "Vendor neutrality is an absolute principle. We do not want any part of the system to be tied to any vendor," says Pramod Varma, UIDAI's chief architect overseeing its technology architecture. "We told all the vendors that if you want to be playing into this ecosystem, you have to adhere to these standards. We are going to have a plug-and-play architecture." Open-source technology enables freer competition and therefore lower prices, Varma adds.
The UID has so far certified five manufacturers of devices and plans to extend that to about five others shortly; it is working with a total of some 15 devices makers, according to Varma. He expects the first lot of about 15 registrars requiring up to 40,000 device kits in the next six to eight months, and the increasing volumes to force price declines. "For example, in the iris scanner market, we initially expected prices of about US$2,000-US$2,500 each; by the time we started enrolling [Aadhaar recipients] the price had come down to US$1,000-US$1,500, and now we are seeing sub-US$1,000 prices," Varma says.
Some foreign vendors are enthused enough to consider setting up manufacturing facilities in India to supply the Aadhaar market, Varma notes. U.S.-based L1 Identity Solutionshas already confirmed to the UIDAI that it plans a facility near New Delhi. L1, a provider of identity-related products services, recently won a US$24.5 million UIDAI order for fingerprint and iris biometric capture devices. "With the volumes, they don't have much of a choice [but] to have local assembly that is also fully locally supported," says Varma of the pressures on suppliers to set up local bases. What's more, he adds that he is also seeing "tremendous partnership activity" between local and foreign firms in products such as mobile banking devices for microfinance payments.
Streamlining Employee Benefits
Aadhaar would also help bring new efficiencies to the employment market, says Manish Sabharwal, co-founder and chairman of TeamLease Services, a large temporary staffing services provider based in Bangalore. With UID numbers, benefits such as provident fund, pension and medical insurance plans could be linked to employees' accounts, instead of the current practice of employers managing those records. "It is particularly relevant in India where 93% of employment is informal or unorganized," says Sabharwal. "The benefits world would receive a dose of productivity, transparency and lower cost if they anchor themselves in UID." Further, he expects UIDs to help separate out the administrative, investment and management functions in government-run provident fund programs and make way for new competition and lower costs. As an employer, he also looks forward to a UID-linked labor market where he can verify applicants' academic credentials.
In late October, the UIDAI signed a deal with India's ministry of human resource development to create an electronic registry of all students. The previous day, the Central Bureau of Investigation uncovered a fake university degree racket and discovered more than 51,000 forged certificates. Human resource development minister Kapil Sibal expects to use UID numbers on school records to help track student mobility, stem dropouts by monitoring student attendance and performance, prevent spurious certificates and enable employee verification, according to media reports. He also wants to link the UID numbers to education loans and scholarships.
Meanwhile, the UIDAI has gotten off to a brisk start with a critical mass of registrars including all state governments, 16 banks and the Life Insurance Corp. of India and its network of agents, according to Ashok Dalwai, its deputy director-general for the Bangalore region (covering five states in South India). The registrars also include civil society organizations that would cover migrant labor, the homeless and the physically or mentally challenged. "The whole purpose is to capture these people who are typically left out," Dalwai says. The Tata Group's CMC has been retained for training data collection operators, and the UIDAI would need about 7,000 operators to capture the targeted one crore (10 million) records in four months, he adds.
Peering not too far into the future, other opportunities could beckon UIDAI. For one, it could export its knowhow and expertise in designing, implementing and running large social and financial inclusion programs elsewhere in the world. Director-general Sharma points out that UIDAI would have the world's largest database of 1.2 billion biometric records; the biggest such database so far is the U.S. Visit program which has about 110 million biometrics records, he says. Already, Mexico and Brazil have shown interest in studying Aadhaar, and Argentina has invited Sharma for discussions on how to implement such a massive program. "The world is looking to India to see how we do it," says Sharma. "If we are able to pull it off, it will be really transformational -- not only for ourselves but also replicable elsewhere in the world."
An estimated US$20 billion worth of business opportunities over the next decade have begun rolling out in India with the launch of a nationwide program named "Aadhaar," which aims to issue 600 million unique identification numbers, or UIDs, to residents over the next four years.
A massive new market will open up as the Aadhaar UIDs enable hundreds of millions of poor and migrant residents to open bank accounts, get loans and expanded access to jobs, health insurance, mobile phone services and the like, while facilitating the delivery of public services including government programs for school children and the poor. The program also promises to improve the labor market with more efficiency in running pension plans, discouragement of jobseekers with spurious certificates, and improved tracking of attendance and performance for school students.
Large multinational technology and business services firms are looking to sell all manner of equipment, software and consulting services. Some are even planning to set up local manufacturing operations. Government and private sector entities, including banks and insurers, are poised to reengineer their services delivery as Aadhaar will help them identify, track and reach large new sections of the population that were previously underserved or off their radars. India Knowledge@Wharton spoke with executives at the Unique Identification Authority of India (UIDAI), led by Infosys Technologies co-founder Nandan Nilekani, and other experts about the emerging market opportunity.
Challenging the "Poverty Premium"
The UID project would create business opportunities at several levels, according to a report from CLSA Asia Pacific Markets, written by Anirudha Dutta, its deputy head of India research, and Bhavtosh Vajpayee, its head of technology research. "As UID-linked infrastructure expands over the next five years, we envisage a US$20 billion market and estimate that it will create 350,000 new jobs," they say in their report. By the sixth year, they expect the commercial pie to be worth US$10 billion annually.This, they say, could increase to US$20 billion with the "long tail impact" on banks and telecommunication services firms. Dutta and Vajpayee point also to the huge untapped market that the undocumented in India represent. Of a billion-plus people, only 35 million pay income taxes, 70 million have permanent account numbers to pay taxes, 60 million have passports and 240 million have bank accounts, they note. "The resulting poverty premium means the poor pay more (via usurious credit), receive less (thanks to misdirected or misappropriated subsidies) and are even excluded from basic services such as banking."
The business opportunities begin with identifying and verifying the authenticity of potential customers for all manner of services such as banking or mobile phone subscriptions. The UIDAI has kept its task simple, as Nilekani explains it: Issue Aadhaar numbers to enrollees, and provide authentication to whomever needs it. It uses biometrics technology such as fingerprints and iris scans as its identification criteria. It collects enrollees' biometric information through "registrars" it has appointed including all state governments, several public sector organizations, banks and other entities. The registrars are responsible for hiring and training the field staff that will collect the data, each carrying a specially designed kit that includes a computer, iris and fingerprint scanners and a camera. The enrollees' information is sent to the UIDAI, which then runs them through a "de-duplication" process to weed out any duplicate entries to ensure each number is truly unique. To ensure data security and privacy, UIDAI will not release enrollees' data; it will only respond to every request for authenticating an identity with a simple "yes" or "no."
"What is special about this project is the use of today's technology and computing horsepower and biometrics ... for a developmental purpose, to give an ID to a large number of Indians who don't have any papers or an ID, and then lay the foundation for the reengineering of public services," Nilekani says in an interview with India Knowledge@Wharton. "One of the big challenges is [that] we have a nation of migrants -- 120 million migrants out there -- they don't have an ID or their ID is not recognized; they may come from one village in one state and go to another city in another state." The Aadhaar numbers will help track the delivery of government programs such as the public distribution system (PDS) for food or mid-day meals or immunization programs for school children by matching benefits with actual beneficiaries, thereby plugging siphoning of funds or leakages to the private market, as with wheat.
"The whole idea of a subsidy or benefit or entitlement delivery system is it should reach the person it is supposed to reach, so the non-transferability of these is something the government would like to ensure," says R.S. Sharma, UIDAI's director-general. "If something meant for X gets delivered to X, that in itself is a great improvement as it will eliminate the leakage and misdirection of subsidies. For example, in PDS, if you are able to ensure that the food grains meant for X are indeed delivered to X only and nobody else, this will bring in accountability at the last mile of the delivery chain."
The Power to Claim Your Money
Aadhaar will also open up a whole new market for banks and other financial services providers. UID enrollees that don't have bank accounts could have them, thanks to an agreement UIDAI has reached with the Reserve Bank of India that the data collected would meet requirements. "We are telling the banks that we will transfer a single file [to each of them] including the [enrollee's] consent and that we have done the due diligence for it," says Ashok Pal Singh, UIDAI's deputy director-general overseeing the plan for financial inclusion, besides other portfolios. "Banks can do customer acquisition without any cost." (The UID is yet to figure out the best way to apportion these account-opening mandates to banks; it may do that through competitive bidding, Singh adds.)
"The fundamental purpose of a bank account is you are associated with your money -- a demonstrated and verifiable property right over the money you have," says Arun Sundararajan, professor of information, operations and management sciences at New York University's Stern School of Business. "This is probably the most transformational IT (information technology) project we are going to see in our lifetime," says Ravi Bapna, a professor of information and decision sciences at the University of Minnesota's Carlson School of Management, who holds a joint appointment at the Indian School of Business in Hyderabad. He is working on a study of UID's potential with Sundararajan.
As Big as Y2K
The UID is seeing robust interest from providers of equipment, software and other services for both the enrollment process (scanners and cameras, for example) and for financial and other applications, such as micro-ATMs to facilitate financial transactions in rural areas. "We are talking to almost every MNC in the technology area," says Bala Parthasarathy, UIDAI's head of authentications and applications. They include the likes of Microsoft, LG and Oracle, besides an array of smaller, specialized technology firms like U.S.-based biometric technology services firm IriTech and business applications developer Geodesic of Mumbai. In fact, Microsoft co-founder Bill Gates announced at a conference last year that he found the UID project "a great initiative" and wanted Microsoft to be part of it. Parthasarathy, a 20-year Silicon Valley entrepreneur, has taken a break to work on the UID project. He notes that he and other entrepreneurs and corporate executives whom Nilekani has attracted to UID "are here because this is more exciting than anything else we can do in the private sector."
Parthasarathy likens the UID program to the U.S. government's Darpa (Defense Advanced Research Projects Agency), which laid the foundations of the Internet in the early 1970s. Darpa at the time launched research and applications development around communication protocols for networked computers. The reengineering of banking, PDS, government-run pension and social security programs and educational infrastructure will be on a scale similar to that of the Y2K conversions at the turn of the century, says Tushar Vashisht, manager, project strategy at UIDAI; he has taken a break from an investment banking job in Singapore to work on his current project.
UIDAI has designed and published specifications for the collection, storage and authentication of the data, and for equipment and software including iris scanners and cameras, as well as for business applications like microfinance payments. Interestingly, it has insisted on open-source technology for UID applications to the maximum extent possible. "Vendor neutrality is an absolute principle. We do not want any part of the system to be tied to any vendor," says Pramod Varma, UIDAI's chief architect overseeing its technology architecture. "We told all the vendors that if you want to be playing into this ecosystem, you have to adhere to these standards. We are going to have a plug-and-play architecture." Open-source technology enables freer competition and therefore lower prices, Varma adds.
The UID has so far certified five manufacturers of devices and plans to extend that to about five others shortly; it is working with a total of some 15 devices makers, according to Varma. He expects the first lot of about 15 registrars requiring up to 40,000 device kits in the next six to eight months, and the increasing volumes to force price declines. "For example, in the iris scanner market, we initially expected prices of about US$2,000-US$2,500 each; by the time we started enrolling [Aadhaar recipients] the price had come down to US$1,000-US$1,500, and now we are seeing sub-US$1,000 prices," Varma says.
Some foreign vendors are enthused enough to consider setting up manufacturing facilities in India to supply the Aadhaar market, Varma notes. U.S.-based L1 Identity Solutionshas already confirmed to the UIDAI that it plans a facility near New Delhi. L1, a provider of identity-related products services, recently won a US$24.5 million UIDAI order for fingerprint and iris biometric capture devices. "With the volumes, they don't have much of a choice [but] to have local assembly that is also fully locally supported," says Varma of the pressures on suppliers to set up local bases. What's more, he adds that he is also seeing "tremendous partnership activity" between local and foreign firms in products such as mobile banking devices for microfinance payments.
Streamlining Employee Benefits
Aadhaar would also help bring new efficiencies to the employment market, says Manish Sabharwal, co-founder and chairman of TeamLease Services, a large temporary staffing services provider based in Bangalore. With UID numbers, benefits such as provident fund, pension and medical insurance plans could be linked to employees' accounts, instead of the current practice of employers managing those records. "It is particularly relevant in India where 93% of employment is informal or unorganized," says Sabharwal. "The benefits world would receive a dose of productivity, transparency and lower cost if they anchor themselves in UID." Further, he expects UIDs to help separate out the administrative, investment and management functions in government-run provident fund programs and make way for new competition and lower costs. As an employer, he also looks forward to a UID-linked labor market where he can verify applicants' academic credentials.
In late October, the UIDAI signed a deal with India's ministry of human resource development to create an electronic registry of all students. The previous day, the Central Bureau of Investigation uncovered a fake university degree racket and discovered more than 51,000 forged certificates. Human resource development minister Kapil Sibal expects to use UID numbers on school records to help track student mobility, stem dropouts by monitoring student attendance and performance, prevent spurious certificates and enable employee verification, according to media reports. He also wants to link the UID numbers to education loans and scholarships.
Meanwhile, the UIDAI has gotten off to a brisk start with a critical mass of registrars including all state governments, 16 banks and the Life Insurance Corp. of India and its network of agents, according to Ashok Dalwai, its deputy director-general for the Bangalore region (covering five states in South India). The registrars also include civil society organizations that would cover migrant labor, the homeless and the physically or mentally challenged. "The whole purpose is to capture these people who are typically left out," Dalwai says. The Tata Group's CMC has been retained for training data collection operators, and the UIDAI would need about 7,000 operators to capture the targeted one crore (10 million) records in four months, he adds.
Peering not too far into the future, other opportunities could beckon UIDAI. For one, it could export its knowhow and expertise in designing, implementing and running large social and financial inclusion programs elsewhere in the world. Director-general Sharma points out that UIDAI would have the world's largest database of 1.2 billion biometric records; the biggest such database so far is the U.S. Visit program which has about 110 million biometrics records, he says. Already, Mexico and Brazil have shown interest in studying Aadhaar, and Argentina has invited Sharma for discussions on how to implement such a massive program. "The world is looking to India to see how we do it," says Sharma. "If we are able to pull it off, it will be really transformational -- not only for ourselves but also replicable elsewhere in the world."
