2409 - It simply can't fail - Hindustan Times

Abhijit V Banerjee, Pranab Bardhan, Ashok Kotwal, Milind Murugkar, Bharat Ramaswami, Hindustan Times

February 28, 2012

The National Food Security Bill has the potential to make a significant difference to the lives of the poor if properly implemented. However, the Bill in its present form has some easily correctible flaws that could cause huge problems in the future. A couple of simple amendments would greatly simplify the implementation and also allow innovation in the delivery of food subsidy.

First, the proposed framework based on three categories of households — priority, general and excluded — is doomed to create the same sort of problems as BPL targeting. If there is one thing that the experience of the BPL list tells us, it is that the identification of the really poor — priority is what it will be called now — is fraught with problems. Even with the best intentions it’s very hard to determine who is really very poor, and who is merely poor, especially since incomes fluctuate and someone who looks less poor today may become derelict tomorrow.

Doing it even moderately well is both difficult and costly. Moreover, as we know well, the best of intentions are not always available — the political system has its own way of favouring some and excluding others, and it is often the poorest and the politically weakest who get marginalised. Finally, it is often said, "programmes for the poor tend to be poor programmes".

Having the political heft of the less poor fully behind the entire programme (and not just behind the piece that applies to them) makes the programme much more likely to have durable political and administrative support.

It's much easier to imagine being able to identify the one, significantly wealthier, excluded category. Why not, therefore, just have two categories: the included and the excluded, and treat all included groups equally? Simple arithmetic shows that in terms of grain the per capita subsidy will go from 7 kg per capita to 5 kg per capita for those who get classified in the 'priority sector' and from 3 kg per capita to 5 kg per capita in the 'general sector' and there will be money left over for providing some support for those in the Antodyaya programmes. It's possible that the government will hesitate for fear that it may be accused of going back on its word for those in the 'priority sector'. However, we believe that the political costs of a return to a poorly functioning and corrupt system after introducing a much heralded new legislation could be much higher. The hopes raised by the tabling of the Bill will turn into disillusionment and resentment.

Second, we believe that the Bill should allow greater flexibility to state governments as long as they stay within the resource limits specified by the central government. Each state must be left free to carry out the public distribution system (PDS) reform as it sees fit. Some states may want to change to cash transfers; others may opt to continue with transfers in kind, or go to something intermediate, such as food stamps. In the present form, it's not clear if a state wishes to try, say, cash transfers, it would be able to do so. As it stands, different sections of the Bill are not compatible with each other. For example, Section 7 on 'PDS Reforms' seems to allow for cash transfers. Yet, the rest of the Bill is written strictly in terms of grain transfers. Most significantly, the obligations of the central government are written only in terms of the amount of grain they must supply to the states. If they then switch to cash transfers, could there not be legal challenges? The obligations of the central government should, therefore, be specified not just in terms of the quantity of food grains but also their 'monetary equivalent'.

This will also ensure that the monetary value of resource transfers doesn't erode with inflation.

The UPA government can take credit for enacting some progressive legislation over the last few years. Their claim to being a pro-poor party is partly based on this record. However, how some of these progressive policies have actually worked in practice has left this claim in tatters. If the UPA wants to be identified as pro-poor in the minds of the multitudes, it can't bank on tokenism alone. The voters will base their judgement on what they experience in their day-to-day lives and not on what is written in a piece of legislation. Even from the perspective of what is political advantageous, it would be a mistake to ignore the suggestions that would make the Bill more implementable.

The party bosses as well as the Cabinet should take their time to ponder the obvious flaws in the language of the Bill that could potentially create disasters when it is implemented. They should realise that in the minds of the poor, a continuance of implementation failures would loom as a far greater betrayal than the equalisation of subsidies across two impossible to separate categories.

This Bill will unveil the largest poverty alleviation programme in India. It's the most progressive piece of legislations ever contemplated in India. We simply cannot let it fail.

Abhijit V Banerjee is Professor, Massachussetts Institute of Technology; Pranab Bardhan is Professor, University of California, Berkeley; Ashok Kotwal is Professor, University of British Columbia; Milind Murugkar is Policy Analyst, Pragati Abhiyan, Nasik; Bharat Ramaswami is Professor, Indian Statistical Institute, New Delhi. The views expressed by the authors are personal.

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2408 - UIDAI and the textbook case study of how not to do it, one for the business schools - David Moss

The Unique Identification Authority of India (UIDAI) came under attack. Its very existence was threatened. Naturally enough, UIDAI decided to defend itself.

It's worked. UIDAI survives for the moment.

But theirs is a Pyrrhic victory. The UIDAI defence could undermine the credibility of every public authority in the world which has nailed its colours to the mast of biometrics – which is most of them – and could destroy the multi-billion dollar mass consumer biometrics industry.

The job of the Unique Identification Authority of India (UIDAI) is to use biometrics to identify every resident of India and to issue them with a unique corresponding number, a so-called "Aadhaar number".

"Aadhaar" means foundation or support and the idea is that, once everyone has an identifying number, it will be easier for the various arms of government to build systems on that foundation to provide social security benefits, for example, and to facilitate national security. And beyond government, the banks will supposedly find it easier to authenticate payments.

UIDAI is not without its critics:

• The Standing Committee on Finance (SCoF), a committee of the Indian Parliament, has considered the National Identification Authority of India Bill, 2010. That Bill would establish UIDAI on a statutory basis if it was ever enacted, but it hasn't been. Meanwhile, UIDAI is operating under executive order only. It's not operating very well according to the SCoF report and it's about time UIDAI came under the control of Parliament.
• And then there's the Ministry of Home Affairs. They're a properly constituted body and not just a creature of the Executive. And they have a competing identity management scheme, NPR (the National Population Register). Result – a turf war, Aadhaar v. NPR.

SCoF and the Ministry of Home Affairs pressed their case with the Prime Minister but UIDAI proved too adept for them. The Chairman threatened to resign, which would be embarrassing for the prime Minister – good move no.1. Good move no.2 – UIDAI arranged some convenient PR with the compliant Economist magazine. And then they published not one but two reports making unprecedented claims for the reliability of the biometrics used in Aadhaar:

• Role of Biometric Technology in Aadhaar Enrollment
• India boldly takes biometrics where no country has gone before

Oops. Bad move. There are five problems here:

1. Both reports are produced by UIDAI only. There is no sign that that they have been audited by any independent expert body.
2. Both reports quote reliability figures. No other public authority in the world does that. Not operational figures – figures measuring the reliability of biometrics in the field, at the border, for example. They should. But they don't. Now, thanks to UIDAI, they will all come under pressure to quote independently audited figures themselves, figures for reliability, to justify their investment of public funds. It is likely that the public are going to be shocked at just how unreliable the biometrics are, that their governments are using. The public will at last understand why their governments have been so reluctant for so long to quote any figures.
3. Why is that likely? Because the figures quoted by UIDAI are hundreds of times better than anything anyone else has ever claimed following tests of biometrics. Hundreds.
4. The second report says that (a) Aadhaar uses flat print fingerprinting and iris scanning, (b) the two biometrics are fused to form one composite biometric, so-called "multi-modal" biometrics, and (c) UIDAI use not one matching algorithm, but three of them. Any large-scale identity management scheme that doesn't do the same, they say – (a), (b) and (c) – is doomed to "catastrophic failure".
5. The suppliers of biometric technology have never had to give public warranties before. Now they will have to.

Great. Now suppose you're the Australian Customs and Border Protection Service. You've spent millions of dollars of public money deploying smart gates at Australian airports as a security measure. These gates depend on face recognition biometrics. Not on UIDAI's list (a). The Australian (and new Zealand) border security system is doomed to "catastrophic failure". Don't take my word for it. Ask UIDAI.

You've spent years refusing to divulge any figures about the reliability of your technology:

Customs refused to disclose the rates at which the system inaccurately identified people. "For security reasons, Customs does not disclose the false positive and false negative rates," a spokesman said.

Now UIDAI have released figures, how are you going to hold the line? You can't.

You could say that UIDAI's figures haven't been audited and may turn out to be false. Now you've got a fight with UIDAI on your hands. And what's the best result you can hope for? UIDAI's figures turn out to be a pack of lies and actually the reliability of Aadhaar is just as appalling as the Australian system. Not what you wanted. It doesn't help to explain why you've been squandering your own citizens' tax money on joke technology.

The same applies to the UK, of course, and our planned deployment of smart gates at airports. Another catastrophic failure? And all those states in the US busy incorporating face recognition biometrics into driving licences. These people – the Australian Customs and Border Protection Service, UK Border Agency, et al – are not going to be pleased with UIDAI. UIDAI have let the cat out of the bag and have almost certainly started a fresh collapse of confidence in public administration as a result.

And neither are the biometrics suppliers going to be pleased. How are Morpho going to sell their products now without giving warranties? They're not.

And how are IBM and CSC going to be able to sign any more nine-figure contracts with credulous governments? They're not.

And how are PA Consulting going to sell any more biometrics assignments? They're not.

UIDAI are going to be persona non grata worldwide. Especially in India, where the Prime Minister may yet regret his decision to carry on funding them. And stop. He may give almost any reason but the big reason, the one several people have pointed out for a long time, is that far from curtailing corruption, Aadhaar was simply going to automate it.

A tragedy with a happy ending, the only people who will be pleased is absolutely everyone else in the world, who can now keep some of their tax money and spend it themselves rather than paying public authorities to waste it for them.

UIDAI's Pyrrhic victory? From now on it's going to be known as an "Aadhaar victory". At least it will when the business schools write it up and teach it all around the world. And when the Economist faithfully report UIDAI's defence, under the heading "Poison pill – that's not the way to do it".

2407 - The very premise of Aadhar is flawed.

The very premise of Aadhar is flawed.

Its a certification that those who claim to think on behalf of India or its underprivileged understand it so differently from the beneficiaries they think of.

In a nutshell, Aadhar will not bring about any of the benefits that are intended for its intended beneficiaries. Because that will be solving a problem of governance by adding another layer that is imaginary and unnecessary.

To call it "technological leadership" is as removed from reality as calling a reader a writer of the book. At best it will mean that we can take a technology and ram it down the throat of the poor while other nations with stronger democratic roots and respect for citizens have not been able to do so for reasons of building consensus.

"Aadhar" is like dropping a car by helicopter in a village where there is no road and hope every villager can reach wherever they may want to go.

For anyone willing to think, Aadhar is a reflection of the huge disconnect that India has from both the world of the underprivileged and the rest of the world.

Please think through before supporting it.

2406 - Sex scandal hits UIDAI, top officer transferred - IBN Live

India | Updated Feb 21, 2012 at 07:21pm IST

http://ibnlive.in.com/byline/Meetu-Jain.html

New Delhi: The high profile Unique Identification Authority of India (UIDAI) is in the news once again and for all the wrong reasons. 

An IRS officer working for the project has moved court against a colleague, an IAS officer at the authority's Hyderabad office, over alleged sexual harassment.

She was forced to approach court after the UIDAI didn't act against the officer despite orders from the Central Administrative Tribunal (CAT).

IRS officer S Padmaja, first approached the CAT seeking transfer of the officer who was harassing her sexually. The CAT not only ordered the transfer of the officer but also found it strange that the UIDAI did not take action against the guilty officer.

The tribunal had forced a reluctant UIDAI to place on record the report of an in-house committee, which found the officer guilty.

The court also questioned why the copy of the report that held her boss guilty was not given to the victim.

The IAS officer VS Bhaskar challenged the CAT order in the Andhra High Court on Friday. But now in an apparent backtracking, the UIDAI has informed the court that the officer is being repatriated to his parent cadre.

"The final hearing of the case is on Wednesday," said J Sudheer, counsel for the victim.

The UIDAI headed by IT czar Nandan Nilekani was supposed to be a corner stone for good governance, bringing best practices of the corporate world into government functioning. But the latest controversy of a sexual harassment case at the UIDAI and the courts taking a dim view of the manner in which it was handled, hasn't helped the authority, which was in the news recently over issues of data security and authenticity of the data it has been generating.

2405 - What the Aadhaar payment pipe offers - The Hindu

BANGALORE, February 26, 2012

DEEPA KURUP

Simple, yet complex: A high-level task force has laid out a blueprint for a single-platform e-payment gateway linked to and enabled by Aadhaar. — File photo: K. Murali Kumar

Authentication pilots show two per cent ‘false rejects', 8 to 12 seconds response time

Weeks before the Union Budget, a high-level task force on ‘Aadhaar-Enabled Unified Payment Infrastructure', on Thursday, submitted a report laying out a blueprint for a single-platform e-payment gateway to facilitate the transfer of subsidies and payments for various government schemes. This solution, to be linked to and enabled by Aadhaar, is to provide a standard platform for various government institutions so that they can make payments in an automated manner.

An interoperable network of 10 lakh Business Correspondents, who were conceived as the magic wand to address the objective of financial inclusion, is to use the combined infrastructure of banks and India Post, across the 2.25 lakh gram panchayats in the country.

Widely perceived as a precursor to the introduction of cash transfers or direct subsidies, this payment gateway will be implemented by the National Payments Corporation of India, an outfit promoted by leading Indian banks. Another significant component of this proposal is the Unique Identification Authority of India's (UIDAI's) own MicroATM, currently being piloted in rural Jharkhand for the disbursement of wages under the Mahatma Gandhi National Rural Employment Guarantee Act.

AUTOMATING PAYMENTS

So what does implementing this single-platform payment system involve in terms of technology? The process envisaged, though challenging, is basic. It proposes that a government e-payments gateway be set up, implemented by the Controller General of Accounts. This means that the process of transferring funds from the Finance Ministry to various departments, both for Direct Transfer of Subsidies and Electronic Benefit Transfers, will be automated.

To put it simply, the government department will send an encrypted file containing the Aadhaar number and the payment amount to the accredited bank. This is then processed through an interoperable (across banks) Aadhaar Payments Bridge. This bridge sends the information to the National Payments Corporation of India, which interfaces with accredited banks (each Aadhaar number is mapped to beneficiaries' accounts at the backend of this system).

Speaking to The Hindu, deputy director-general, UIDAI, A.P. Singh said such a system would not be tough to implement because “there's very little new stuff”. “Basically, Aadhaar provides the glue to piece existing technologies together. And it simplifies processes, like opening a bank account,” he said.

He pointed out that out of the 200 million enrolments, in its first phase, 84 per cent residents opted to open an Aadhaar-linked bank account. 

The bridge, he points out, is a simple intervention, where a simple file can be created and uploaded with just the payment amount and the Aadhaar number. “These capabilities are worked out at the NPCI level, and the entire system provides end-to-end visibility, and ensures there is no duplication.”

While this simple single-platform system does not involve either biometrics or authentication, the flagship features of the Aadhaar project, what is being envisaged outside this software layer may be a little more complex. Though the proof-of-concept reports on the pilots in Jharkhand are yet to be made public, Mr. Singh emphasised that it has been “a success”. The false rejection rate, he pegs at around two per cent, which will be “further brought down to 1.2 per cent”. This counters claims by critics who have argued that fingerprint authentication will be a challenge in rural India. “To improve this factor, we are also working out a way for residents to test their best finger,” he added.

Operating on a basic mobile network, Mr. Singh says, the turnaround time to obtain a yes/no authentication message (from the central UIDAI servers) is between eight to 12 seconds. Currently these MicroATMs — which is a basic Point of Sale terminal with a biometric reader — cost around Rs. 10,000-12,000. From March onwards, this pilot will be rolled out in many more districts across the country, he added.

CHALLENGES

Getting the ball rolling on this system will require all government departments and institutions to fully digitise all their payment sanction processes. 

This itself will be a huge task, a senior official from the Department of Information Technology told The Hindu, adding that the process is already on in several departments.

For instance, in Karnataka, the Government implemented a pilot project for electronic transfer of MNREGA wages in Nelamangala taluk. This “largely successful” pilot programme involved making a database of all job card holders with their bank account numbers, entering digitally encrypted job details and wage lists to the MIS systems, which is then interfaced with a designated bank for cash transfer to beneficiaries.

In the pilot, out of 1,175 total transactions, 1,146 were conducted successfully, said P. Shivshankar, State director, MNREGA. However, the challenges, he conceded were considerable, right from getting beneficiaries to open bank accounts in the designated banks to validating existing data in the informatics system and prepping up the infrastructure requirements.

This task, in the case of the MNREGA financial management system was simpler because there has been an efficient informatics system in place for over three years now. In the case of many other schemes, particularly those run by State Governments across the country, setting up the infrastructure and automating the process will take some time.

While all this may be fine, the weakest link in the chain may well be its last link — the Business Correspondents who are expected to actually make payments to beneficiaries. With the experience with microfinance fresh in the mind, there are fears that this may well be the point of “leakage” that Aadhaar, with all its fanfare, is supposed to plug.

2404 - Aadhaar registration again from April 1 - IBN Live

Andhra Pradesh | Posted on Feb 25, 2012 at 11:14am IST

HYDERABAD: Registration for Aadhaar cards issued by the Unique Identification Authority of India (UIDAI), which was temporarily halted in the state from February 15 on technical grounds, will be resumed from April 1.

This information was given by minister for food, civil supplies, legal metrology and consumer affairs D Sridhar Babu during the question hour in the state Assembly on Friday.

Assuring that all eligible persons would receive the card by the end of this year, he said the would adopt the Aadhaar card as the basis for all government schemes, including pension and scholarship, once the entire population was covered by the scheme.

Answering the main question raised by P Keshav, E Lakshminarayana, Vijay Prasad, Ahmed Balala and others, the minister said the government planned to issue Aadhaar cards to 8.46 crore people in the state in six months.

The central government's Aadhaar project aims to provide a unique identity number to each citizen of the country.

As a pilot project, the state civil supplies department has implemented the project in seven districts— East Godavari, Anantapur, Chittoor, Srikakulam, Rangareddy, Hyderabad and Adilabad— in the first phase.

Sridhar Babu said the government was contemplating issuing Aadhaar numberbased smart Cards to all BPL families in the state.

These cards can be used to buy rations from fair price shops and for several other purposes. Biometric system will be used to prevent misuse of the cards.

“The central government pays Rs 50 for each enrolment under the UIDAI project. The civil supplies department has entrusted the work to a private agency after calling tenders and is paying it Rs 29 for each enrolment, thus saving Rs 21 for the government on each enrolment."

In the second phase, the enrolment process will be taken up in urban areas covered municipal corporations while the work in towns and rural areas will be entrusted to registrars such as nationalised banks.

Tenders were invited and one software agency has come forward to undertake the enrolment work by charging the government Rs 35 for each enrolment.

The government would take action if anyone was found involved in irregularities in issuance of cards, the minister warned.

Of the 8.46 crore people in the state, about 5.25 crore have been enrolled so far. Of them, 3 crore have been enrolled by the state civil supplies department and 2.25 crore by registrars (banks).

While, 5.25 crore people were enrolled, 3.35 crore cards have been generated so far.

The enrolment process was temporarily halted due to technical problems and a turf war between the Union home ministry and the Planning Commission.

2403 - Task Force on an Aadhaar Enabled Unified Payment Infrastructure Submits Report to Finance Minister; - PIB NIC

Task Force on an Aadhaar Enabled Unified Payment Infrastructure Submits Report to Finance Minister;

FM Calls for Upscaling and Implementation of Pilot Projects in More Areas

The Union Finance Minister Shri Pranab Mukherjee said that Aadhaar-Enabled E-payment system would help not only in ensuring the timely payments directly to the intended beneficiaries but would also help in reducing the time taken, transaction costs and the leakages among others. 

The Finance Minister said that this would also help in bringing transparency in the system and reducing avoidable delays. The Finance Minister Shri Pranab Mukherjee was speaking after receiving the Final Report of the Task Force on Aaadhar-Enabled Unified Payment Infrastructure presented to him by Shri Nandan Nilekan, Chairman UIDAI and the Task Force, here today. The Finance Minister Shri Mukherjee further said that pilot projects be upscaled and implemented in more areas and in more States. 

 So far pilot projects are mainly implemented in the areas of LPG, kerosene, fertilizers and MGNREGS which can be further expanded, the Minister added. Today’s meeting was also attended among others by the Union Agriculture Minister, Shri Shard Pawar, Rural Development Minister, Shri Jairam Ramesh, Minister of State (Independent charge) for Consumer Affairs, Food and Public Distribution, Shri K.V. Thomas, the Minister of State for Chemicals and Fertilizers, Shri Srikant Jena, Secretaries of various Departments/Ministries and senior officials of Ministry of Finance and Planning Commission among others.

Earlier, the Chairman UIDAI and the Task Force, Shri Nandan Nilekani made a presentation highlighting the various recommendations made by the Task Force in its Final Report. Shri Nandan Nilekani said that a strategic transformation of the governance can be brought about by the usage of electronic payments across the board. Shri Nilekani said that the Task Force has recommended a systematic platform based approach for the electronic payments.

The Task Force which was chaired by Chairman, UIDAI, Shri Nandan Nilekani also included Secretaries of the Departments of Expenditure, Financial Services, Fertilisers, Petroleum, Agriculture, Rural Development, and Food and Consumer Affairs among others. The members also included DG, UIDAI, Controller General of Accounts (CGA), representatives from the NIC, RBI, IBA and NPCI. The Task Force was constituted in September 2011 to recommend, inter alia, a detailed solution architecture for direct transfer of subsidy through a payments bridge wherein funds can be transferred into any Aadhaar–enabled bank account on the basis of the Aadhaar number.

The salient recommendations of the Task Force include that beneficiaries of all social safety net programs (MGNREGS, SSP, JSY, IAY, scholarships, etc.) and recipients of direct subsidy transfer payments (LPG, Fertilisers, kerosene, etc.) can greatly benefit by receiving their payments electronically, directly into accounts of their choice at either banks or post offices. The Task Force recommends that frontline development workers such as school teachers, Anganwadi workers, ASHA workers, etc. who often do not receive their salaries on time, can also receive their salaries by direct deposit into their accounts at banks and post offices. It also recommends that a network of 10,00,000 interoperable microATMs operated by Business Correspondents will have to be set-up across the country for people to access their accounts at their own convenience. In order to set-up this network quickly, the Task Force has recommended that a last mile transaction fee of 3.14% with a cap of Rs.20 per transaction be paid by Government to banks for Government payments. This will also lead to positive network externalities such as reduction in leakages and achieving financial inclusion. In order to reduce the use of cash in the economy, the Task Force also recommends that Government and Government owned institutions accept electronic payments at all locations where they collect payments from citizens, without any additional surcharge. The Task Force also recommends that over a period of time, all payments of Government over the sum of Rs.1,000 should be made or received electronically. Transacting all Government business using electronic payments will help reduce graft, and bring about greater transparency and accountability. This reform will require a systematic platform-based approach to payments. For this the Task Force has recommended the adoption of the following:

1. Government e-Payments Gateway (CGA): Enable straight-through processing and release of funds from Ministry of Finance to the Line Ministries;

2. Aadhaar account opening and authentication platform (UIDAI): Provides electronic account opening capability along with real-time authentication of residents;

3. Aadhaar Payments Bridge (NPCI): An interoperable system operated by NPCI for transferring funds into accounts at banks and post offices on the basis of Aadhaar number;

4. MicroATM network (Banks and India Post): An interoperable network of Business Correspondents deploying MicroATMs for balance query, deposits, withdrawals, and remittances; and

5. Mobile banking: Provide self-service banking capabilities through mobile phones for everyone. The Union Finance Minister accepted the Task Force Report in-principle and stated that necessary steps would be taken to implement the recommendations of the Report. The Task Force report is available on the Ministry of Finance website i.e. www.finmin.nic.in

DSM/SS/GN

(Release ID :80491)

2402 - UPA makes its case for cash transfers - Live Mint

Posted: Fri, Feb 24 2012. 12:15

Panel says all cash payments above Rs1,000 should be made electronically into Aadhaar-linked accounts

Remya Nair & Surabhi Agarwa

New Delhi: India moved a step closer to implementing cash transfers of direct subsidies and social welfare payments after a high-level panel presented the blueprint for effecting it through an Aadhaar-based payment gateway.

Accepting the report, which details how all payments and cash transfers can be made electronically, finance minister Pranab Mukherjee indicated that it will be the key to plug leakages and ensure more targeted spending under the government’s social welfare programmes.

The timing of the submission of the report, just weeks ahead of the presentation of the Union budget on 16 March, is significant 

The panel, headed by Unique Identification Authority of India (UIDAI) chairman Nandan Nilekani, proposed that eventually all cash payments above Rs1,000 should be transferred electronically into Aadhaar-linked bank accounts, making cash payments using Aadhaar almost universal and lending even greater legitimacy to one of the government’s crucial initiatives that has run into rough weather in recent months.

Subsidy payments and benefits under different schemes amount to almost Rs3 trillion, roughly 3.5% of GDP, according to government estimates.

To incentivize banks to process government payment electronically, the task force has recommended a transaction fee of 3.14% for each payment. It also wants banks to set up a network of interoperable micro-ATMs for ensuring easier access of funds by beneficiaries.

Mukherjee, in his budget speech last year, had announced the creation of the task force to propose a system for direct transfer of subsidy for kerosene, LPG (cooking gas) and fertilizer, and later extended the terms of reference to include the development of an Aadhaar-enabled unified payment architecture.

The task force proposes an e-payment gateway through which the finance ministry will release funds to various ministries for transfer of subsidies and benefits under different schemes. 

These funds will then be transferred from the government into Aadhaar-enabled bank accounts of beneficiaries through a central payment platform. All the government departments need to do is submit details of the beneficiary such as the Aadhaar number and amount to be paid to the bank. The bank will then process the payment and the funds will be credited into the account.

The beneficiary can withdraw the money through either bank branches or business correspondents equipped with micro-ATMs. National Payments Corporation of India already operates an Aadhaar-enabled payment system.

N.C. Saxena, member, National Advisory Council, said it remains to be seen whether direct transfer of cash subsidies will work in India.

“Cash payments are done in India for pensions and under schemes like Janani Suraksha Yojana and are working well to a certain extent,” he said. “But cash transfer will not work as a substitute for the public distribution system. What will the government do with 60 million tonnes of foodgrains it procures from farmers if it opts for cash payments?”

“At a smaller level, say in a slum area, where there is a bank branch, cash transfers could be effective. But at a macro level, it may not work. As it is, people in rural areas do not have bank branches,” he added.

The task force has recommended that banks be paid a transaction fee of 3.14% with a cap of Rs20 per transaction for each government payment. It also proposes the creation of a network of 10 lakh interoperable micro-ATMs operated by business correspondents across the country for easier access of bank accounts.

“The idea for this task force emerged after it was realized that there is no single platform to transfer Rs1.5 trillion of government subsidy electronically to beneficiaries. If all states and government departments start to build their own platforms, it will result in a lot of duplication, waste of public money and resources, apart from complicating things,” said a senior government official close to the development. “So, a single platform has to be created to handle any kind of transfer by any government department in the future,” added this person, who did not want to be identified.

UIDAI has already started a pilot in Jharkhand to test the Aadhaar-enabled payment system for the government’s flagship job guarantee scheme MGNREGS, another in Mysore for LPG subsidy, and a third in Alwar, Rajasthan, for kerosene subsidy.

To reduce the use of cash in the economy, the task force also recommends that government-owned institutions accept electronic payments at all locations where they collect payments from citizens, without any additional surcharge.

UIDAI has enrolled 200 million people and has issued Aadhaar numbers to 133 million so far. It proposes to issue 600 million unique IDs by 2014.

Bankers and others believe the transition will not be easy.

At the moment, interoperability of business correspondents, central to the Aadhaar-based payment gateway, is not permitted by the Reserve Bank of India.

There are other issues as well, said the representative of a banks’ lobby, notably, the IT systems of the banks themselves and the scalability of the Aadhaar back-end.

“Banks will have to make a lot of investment in upgrading their IT infrastructure as most no-frill accounts are on a financial inclusion server and not on the bank’s core banking platform,” said K. Unnikrishnan, deputy chief executive of Indian Banks’ Association. “The Aadhaar-based verification takes around 5-10 seconds at present. It remains to be seen if UIDAI will be able to scale up to meet the large volumes. Also there are some practical issues such as mismatch of fingerprints if the hands of the worker are dirty and covered with mud.”

Banks may also be reluctant to trust the “know your customer” (KYC) verification procedures followed by other banks and their business correspondents, a senior RBI official, who did not want to be named, said recently.

The finance ministry had in December 2010 amended the Prevention of Money Laundering Rules, 2005, to notify Aadhaar as adequate to meet KYC norms for opening bank accounts, putting it alongside the passport, driving licence,permanent account number card, and the voter’s identity card.

An executive at a technology company said that some issues such as authentication and security still need to be resolved. “Banks are already moving towards two-factor authentication, biometrics-enabled UID number-linked accounts for financial inclusion, etc. So, I don’t see them resisting incremental spending on creating an infrastructure for this as well,” he said.

However, this person, who did not want to be identified, said that it is a significant opportunity for technology companies as it will involve a sizable number of devices, interoperablity, creation of a payment gateway and linking of core banking system.

remya.n@livemint.com

2401 - Aadhaar to power direct subsidy delivery in a year - My Digital fc

By KR Sudhaman Feb 23 2012 , New Delhi

The direct transfer of government subsidies on kerosene, cooking gas and food grains to the beneficiaries and wages to those working under various rural jobs schemes may become a reality in the entire country within a year.

On Wednesday, the task force on Aadhaar-enabled unified payment infrastructure — which was headed by UIDAI chairman Nandan Nilekani — submitted its final report, laying the roadmap for electronic transfer of such payments to the beneficiaries. Nilekani submitted the report to finance minister Pranab Mukherjee.

Mukherjee said the Aadhaar-enabled e-payment system would help in direct and timely transfer of payment to the beneficiaries, bring in transparency and reduce transaction costs and leakages.

He wanted pilot projects on direct e-payment to be upscaled and implemented in more states, indicating that it could be widened in the budget.

The government has been trying out pilot projects after the task force submitted its interim report last year.

At present, a pilot project for MGNREGA is being carried out in Jharkhand, one on cooking gas distribution in being tried out in Mysore and a third one on opening bank accounts is being implemented in Tumkur, Karnataka.

One pilot project for mobile verification is proposed in Hyderabad.

The task force suggested appointment of 10 lakh business correspondents in the country’s six lakh villages to facilitate electronic transfer of funds. The business correspondents would act as mini-ATMs in the country’s 2.25 lakh gram panchayats, covering six lakh villages.

The government should bear the last mile transaction fee of 3.14 per cent for this electronic payment transfer, subject to a cap of Rs 20 per payment. The government spends 3.5 per cent of GDP, i.e. Rs 3,00,000 crore, on subsidies and social schemes meant for the poor.

Apart from minimising graft and leakage in the transfer of this huge amount of money to the intended beneficiaries, the government would save a large amount on cash transactions. Studies have shown that the cost of cash transactions amounted to 5-7 per cent of GDP in the country.

Nilekani also made a presentation on the report to Mukherjee, agriculture minister Sharad Pawar, rural development minister Jairam Ramesh and food minister KV Thomas.

At present, the rural banking infrastructure consists of merely 30,000 bank branches and 1,20,000 post offices, which is grossly inadequate to carry out direct electronic transfer of money to the beneficiaries.

“We have recommended a network of 10 lakh micro-ATMs around the country, which are going to be small electronic devices,” Nilekani said. “We have also recommended a transaction fee. But the government will take the final decision. This is a platform for any payment to anyone, be it entailment pay, subsidy or procurement payment. We have been told to work on this and roll it out in next one year,” he said.

The (task force’s) proposal is to use aadhaar as basis of crediting money to bank accounts in order to make this much more efficient. “Due to its uniqueness, the aadhaar number serves as a natural financial address for sending payments to the accounts of beneficiaries at banks and post offices,” the report said, adding that it enables authentication of the beneficiary in real time in a trusted manner during last-mile payments using micro-ATMs.

2400 - Aadhaar panel favours e-payment for all social safety net schemes - Hindu Business Line

Final report: The Finance Minister, Mr Pranab Mukherjee, and the Union Agriculture Minister, Mr Sharad Pawar, hold copies of the Final Report of the Task Force on an Aadhaar-Enabled Unified Payment Infrastructure, presented to them by the UIDAI Chairman, Mr Nandan Nilekani (extreme right), in the Capital on Thursday. — Photo: Kamal Narang

Final report submitted to Finance Minister

NEW DELHI, FEB. 23: 

A network of a million interoperable micro ATMs to be operated by business correspondents should be set up across the country to ensure that the benefits of various social sector schemes reach the intended beneficiaries.

This has been suggested in the final report of the Task Force on Aadhaar enabled Unified Payment Infrastructure. Mr Nandan Nilekani, Chairman, UIDAI, submitted the final report to the Union Finance Minister, Mr Pranab Mukherjee, here today.

The Aadhaar enabled e-payment system would help not only in ensuring the timely payments directly to the intended beneficiaries but would also help reduce the time taken, transaction costs and the leakages among others, Mr Mukherjee said after receiving the final report.

In order set up the network of million microATMs, the task force has recommended that a last mile transaction fee of 3.14 per cent with a cap of Rs 20 per transaction be paid by Government to banks for Government payments. The microATMs can be used for balance query, deposits, withdrawals and remittances.

In order to reduce the use of cash in the economy, the task force has also recommended that Government and Government-owned institutions accept electronic payments at all locations where they collect payments from citizens, without any additional surcharge.

Over a period of time, all payments of Government over the sum of Rs 1,000 should be made or received electronically, the task force report has suggested.

Mr Nilekani made a presentation highlighting the various recommendations made by the task force in its final report. He said that the beneficiaries of all social safety net programmes (MGNREGS, SSP, IAY) and recipients of direct subsidy transfer payments (LPG, Kerosene and Fertilisers) can greatly benefit by receiving their payments electronically, directly into accounts of their choice at their banks or post offices.

In the final report, the task force has suggested that India Post should accept Aadhaar as KYC for post office savings bank accounts and money orders.

India Post should look at deployment of microATMs in every post office. India Post should join interoperability networks and service customers of other banks, and allow own customers to use ATMs, microATMs installed by other banks.

PROOF OF IDENTITY

The task force has also suggested that the Reserve Bank of India may consider recognising the Aadhaar letter as proof of identity and proof of address for money transfer. The central bank should notify guidelines for interoperability of business correspondents.

The RBI should publish a policy in conjunction with the Government to formulate a plan and set targets for reducing the usage of cash in the Indian economy.

For banks, the task force has suggested that at least one microATM be deployed in every bank branch. Banks have been asked to deploy a network of one million business correspondents.

Today's meeting was attended among others by the Union Agriculture Minister, Mr Sharad Pawar; the Rural Development Minister, Mr Jairam Ramesh; the Consumer Affairs Minister of State (independent charge), Mr K.V. Thomas; and the Minister of State for Chemicals and Fertilisers, Mr Srikant Jena.

krsrivats@thehindu.co.in

2399 - Nilekani team moots ATMs for payments via Aadhaar - Rediff

February 24, 2012 12:47 IST

Nandan Nilekani-led task force on an Aadhaar-enabled unified payment infrastructure has recommended setting up a network of one million interoperable micro-ATMs across the country.

The ATMs will be operated by business correspondents. The task force, headed by the Chairman of Unique Identification Authority of India [ Images ], submitted its report to Finance Minister Pranab Mukherjee [ Images ] on Thursday.

The panel has suggested that in order to set-up this network quickly, a last-mile transaction fee of 3.14 per cent with a cap of Rs 20 a transaction be paid by government to banks for government payments.

This will also lead to positive network externalities such as reduction in leakages and help in achieving financial inclusion.

The panel's suggestions is significant as a road map for creation of Aadhaar-based payment mechanism for direct cash-transfer of subsidies and entitlements to the people under government schemes is likely to be announced in the Budget.

The report has stated that beneficiaries of social safety net programmes, including Mahatma Gandhi [ Images ] National Rural Employment Guarantee Scheme and recipients of direct subsidy transfer payments in the case of LPG, fertilisers and kerosene, can greatly benefit by receiving payments electronically - directly into bank or post office accounts.

It has stressed that the department of revenue notify the acceptance of electronic Aadhaar authentication as proof of identity and proof of address, on a par with document based verification in the Rules of the Prevention of Money Laundering Act, 2002.

It wants the government and financial regulators to recognise electronic Aadhaar biometric authentication as equivalent to a physical signature.

The task force has recommended that over a period of time, all payments of government over Rs 1,000 should be made or received electronically. It has suggested adoption of Government e-Payments Gateway (CGA) to enable straight-through processing and release of funds from ministry of finance to the line ministries.

The Aadhaar account opening and authentication platform would provides electronic account opening capability along with real-time authentication of residents in the chain. Further, Aadhaar Payments Bridge - an interoperable system for transferring funds into accounts at banks and post offices on the basis of Aadhaar number - would be the next link in the mechanism suggested by the task force.

Next in the line would be the micro-ATM network through banks and India Post. Use of mobile banking is also suggested in the model to provide self-service banking capabilities.

The finance minister accepted the task force report in-principle and said that necessary steps would be taken to implement the recommendations.

2398 - From kisan credit cards to Aadhaar: Pioneer India being watched closely - Economic Times

24 FEB, 2012, 04.02AM IST,

With Niraj Verma, Senior Financial Sector Specialist, World Bank 

Ensuring that the poor are able to save, smooth consumption, mitigate risks, invest, and build assets is critical to broad-based and equitable development. In the past decade, policymakers broadened their approach to financial inclusion from an almost exclusive reliance on expanding bank branches to innovating and taking advantage of new technology. The business correspondent model allows agents to operate on behalf of banks; as a result over 130,000 rural banking points are now available, compared to 2,000 in 1970. 

Over 20 million kisan credit cards have been issued and index-based crop insurance has been scaled up in recent years. India is unique in having nearly five million self-help groups with loans from banks. And despite having recently run into significant problems, microfinance institutions have helped expand access. The biometric-based Aadhaar initiative of the Unique Identification Authority of India can bridge information gaps and facilitate financial inclusion. 

The RBI and the government have recently committed to increasing financial access to 350,000 villages by 2013, covering a significant part of the 100 million households currently lacking adequate access. However, as RBI and the government are aware, scaling up viably and with quality is not easy. We highlight a few of the challenges. 

Leveraging existing distribution networks: For "last mile" reach, banks have embarked on an effort to increase banking correspondents. But low transaction volumes are making viability difficult. Could scaling up tie-ups between banks and post offices and co-operatives, and allowing MFIs structured as non-bank finance companies to act as banking correspondents, help optimise capacity utilisation and lower transaction costs? Likely. However, the government's facilitation may be needed for such integration to take place. It is also possible that covering some villages with very small population may never be viable, and would require explicit or implicit subsidies. 

Expanding market infrastructure: Credit bureaus have recently expanded coverage of informal sector MFI clients and generate over 500,000 monthly credit reports assessing client indebtedness prior to new lending. Policymakers could facilitate getting rural banks and SHGs to also share information on their borrowers with credit bureaus. Better customer protection is also essential, particularly as delivery channels other than banks expand coverage. 

Expanding products: Recent efforts have helped create 90 million no-frills accounts, a creditable achievement as savings help manage risks, investments and cash flows. However, transaction volumes have been low. The experience with South Africa's mzansi (no-frills) accounts shows that linking up with brands that clients recognise and allowing the use of multiple outlets helps increase transactions. 

Enabling a better microfinance sector: SHGs and MFIs account for more small-borrower accounts than the entire banking system. Once enacted, the draft microfinance law will bring regulatory clarity and promote customer protection. 'Patient' capital can be mobilised by domestic development banks to help sustainable MFIs scale up. 

For SHGs, ensuring quality of lending as scale grows is essential for their long-term sustainability. Also, banks typically price SHG loans at thin spreads over cost, leading to the plateau in disbursements. Pricing that reflect margins better could spur greater lending. India's progress in its financial inclusion efforts, given the numbers and innovation involved, are of great significance. The world is watching.