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India’s Aadhaar Biometric ID: More Than Meets the Eye

November 30, 2017

First proposed in 2009, India’s Aadhaar biometric ID system represents a complete overhaul of India’s approach to identification. The Aadhaar ID links your fingerprint and iris to everything from tax filings to bank accounts. Despite criticism relating to privacy concerns, proponents argue that Aadhaar has the potential to propel the Indian economy towards business transparency and fraud reduction.

What is Aadhaar?

Aadhaar (Hindi for backbone or foundation) is a biometric ID system created by the Unique Identification Authority of India (UIDAI), a government body established in 2009. In addition to basic demographic information such as an individual’s name, a verified date of birth, and gender, Aadhaar also collects fingerprint scans, iris scans, and facial photos. [1] Aadhaar’s scope was codified by the Aadhaar Act of 2009 and has been greatly expanded under the Modi administration. Any Indian resident can create an Aadhaar ID for free. The use of biometric information ensures avoids duplication. After registration, people are issued a unique 12-digit ID. ID numbers can be instantaneously verified on the Aadhaar website, further increasing the reliability of this identification. There are over 1.18 billion Aadhaar registrations to date, making Aadhaar the largest biometric ID system in the world. [2] Under the government of Narendra Modi the Aadhaar ID has moved from a voluntary opt-in ID to an all-encompassing system that is required for everything from filing taxes to opening bank accounts. [3]

However, debate surrounding the right to privacy has gathered traction in the past few months with fears of hacking and data leaks. [4] Moreover, with over 1.18 billion biometric profiles to date, there are overarching concerns by privacy advocates regarding the government’s storage of the biometric information of the entire country.

(Image: 8 Important Aadhaar Card Uses. Source: Bank Bazaar)(Image: 8 Important Aadhaar Card Uses. Source: Bank Bazaar)

Basis for Aadhaar: The “Ease of Doing Business” in India

According to the World Bank’s Ease of Doing Business Index, India ranks 130th out of 190 on the index, with poor performances on tax payment and property registration, ranking 172nd and 138th respectively. Aadhaar provides the background technical infrastructure necessary to combat issues surrounding tax payment and property registration, criteria in which India has lagged.

In terms of tax payments, India’s performance is particularly appalling, ranked among considerably less developed economies, such as Benin and Gambia. [5] The Aadhaar ID serves as a foundation for a broader overhaul of the Indian tax system.  On July 1, 2017, the Value Added Tax (VAT) and other sales surcharges were replaced with a digitized and streamlined Goods and Services Tax (GST), which is filed using Aadhaar. [6] The GST helps foster economic growth by creating different policies and tax incentives for growing sectors like e-commerce. [7] Moreover, it helps make compliance less bureaucratic as tax filings are now done through a new, revamped platform. These tax reforms would not have been possible without Aadhaar. Aadhaar is pivotal to the GST’s operation through its anti-fraud validation checks. As  Aadhaar is tied to biometric information, it is practically impossible to forge. This property, coupled with the easily-accessible online Aadhaar database, allows for a straightforward and uncomplicated validation process. All of this shows that the GST’s radical reforms are fundamentally tied to Aadhaar.

In terms of property registration, Aadhaar helps avoid issues with manipulation of documents, as each property deed is now linked to a unique ID number. This approach aims to resolve the issue of ‘benami’ properties. Benami, Hindi for “without a name”, refers to properties registered in names other than the purchaser to launder money. [8] A common thread between Aadhaar and other governmental actions like demonetization is the aim to minimize black money. By tying  Aadhaar to real estate deals, it is considerably simpler to detect and combat money laundered through these property deals, because transactional information for buyers and sellers can be instantly validated, reducing fraud. 

Aadhaar therefore serves as the groundwork for a range of measures that promote a business-friendly ecosystem, especially in reference to criteria in the Ease of Doing Business Index.

Undocumented Transactions, Demonetization and Aadhaar

On the night of November 8, 2016, Prime Minister Modi announced that all 500 and 1000 INR notes, comprising around 86% of India’s currency in circulation, would be defunct, as a strategy to combat black money. People had until December 31 to deposit their old notes in the bank and withdraw new ones in restricted sums. [9] This measure considerably diminished the quantity of black money circulating. [10] However, shortages of the new 500 and 2000 INR note abounded, and people queued for hours to receive notes that were ultimately in too large a denomination to spend on everyday expenditures. [11] As an alternative to these high-denomination notes, the use of cashless payment systems and online wallets boomed across the country. Although evaluating demonetization is beyond the scope of this paper, this program coupled with Aadhaar represents a trend across India towards a cashless and virtual economy. [12]

By pushing the Aadhaar system, Modi has effectively provided the cornerstone of cashless and virtual economies: greater validation systems to promote contract enforcement. India was, until November 2016, one of the most cash-centric economies on Earth, with almost 95% of all transactions done in cash. [13] By keeping all transactions on the books, the Indian economy addressed one of its core economic woes: tax evasion. Demonetization helped foster the rapid development of mobile wallets and related payment systems to help ease the transition to a cashless system. It is estimated that enrollments for Aadhaar increased by around 60% after demonetization. [14] The government of Telangana state even produced a cashless payment system tied to Aadhaar. [15]

India Stack

The benefits of Aadhaar’s easy validation are not limited to the government. Aadhaar has had a profound impact on corporations by instantly solving issues with validation of customer identities. Reliance Jio, a major digital telecommunications service provider, has started linking its accounts to Aadhaar to give citizens in even the most remote rural village access to a phone number within minutes. Jio’s program is just one example of the usage of instant validation to expand the corporate customer base. [16]

These programs aim to be a part of the “India Stack”, a comprehensive multi-platform public infrastructure that can be used to share data. The ultimate objective is to connect this to a Unified Payments Interface (UPI), and to have transparent payment channels. Government regulators pushed to compel banks to allow payments through third-party UPI payment apps, such as Flipkart’s subsidiary, PhonePe, which contribute to the virtual and transparent society Modi envisioned. [17]

The Government has also linked the provision of government subsidies, integral to the lives of millions of impoverished Indians, to the Aadhaar card. The linkage has considerably lessened corruption and waste from fraud and duplication issues, as Aadhaar is effortlessly verified. The government estimates that Aadhaar has saved over $5 billion by reducing corruption in subsidy distribution. For scale, the government gives out around $40 billion a year in subsidies. [18]

(Image: Governance and Services on Demand Source: Digital India)(Image: Governance and Services on Demand Source: Digital India)

Controversy

The controversy surrounding Aadhaar revolves around questions of privacy and the scope of government intervention. Some advocacy groups find the notion of a 1.18 billion-entry government register of names, addresses, fingerprints and faces somewhat problematic. The Indian Supreme Court earlier this year ruled that certain provisions of Aadhaar violated the right to privacy because, unlike American Social Security Numbers, Aadhaar is accessible to a range of both government and private organizations. [19] These questions of privacy are not unfounded. There have been claims of data leaks and disclosures—everything from bank details to government portals and welfare beneficiary names—allegedly affecting up to 100 million people. [20]

In light of the Indian Supreme Court’s ruling concerning the right to privacy, the Indian government will now have to consider how to strike a balance between the right to privacy and the ease of validation offered to businesses. Furthermore, since the government is storing this amount of data, it is imperative that it is secure. Throughout implementation of Aadhaar the government must also look to a highly rigorous standard of data security.

On the whole, however, Aadhaar offers vital validation tools for everything from tax reform to wireless payment, incorporated by the Modi government to promote legitimacy in the Indian economy. The government views these reforms as integral to attracting further foreign investment and modernizing India’s economy and government services. Aadhaar is the most advanced biometric ID system in the world, and this has already had an impressive effect on tax revenues with the increased transparency and documentation. Between demonetization and the Aadhaar programs, net collections from service tax grew 22%, direct tax grew 10%, and the number of income tax filings grew 24%. [21] [22] With time, Aadhaar may well emerge as the veritable backbone of the Indian economy.

Student Blog Disclaimer
  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.

References

  [1]https://uidai.gov.in/your-aadhaar/about-aadhaar.html

  [2] https://portal.uidai.gov.in/uidwebportal/dashboard.do

  [3] https://www.washingtonpost.com/world/indias-supreme-court-says-privacy-is-an-intrinsic-right-in-blow-to-government/2017/08/24/2c0b762c-8828-11e7-96a7-d178cf3524eb_story.html?utm_term=.175d49638a79

  [4] http://www.thehindu.com/opinion/columns/aadhaar-and-the-right-to-privacy/article10165734.ece

  [5] http://www.doingbusiness.org/rankings

  [6] http://money.cnn.com/2017/06/30/news/economy/india-gst-tax-reform-rollout/index.html

  [7] https://timesofindia.indiatimes.com/business/india-business/gst-rates-e-commerce-companies-to-levy-1-tax-collected-at-source-on-sellers/articleshow/58753765.cms

  [8] http://www.thehindu.com/news/national/All-you-need-to-know-about-benami-transactions-Bill/article14500932.ece

  [9] https://www.forbes.com/sites/wadeshepard/2016/12/14/inside-indias-cashless-revolution/#5dbf1ffe4d12

  [10] http://www.business-standard.com/article/news-ani/here-s-what-demonetisation-s-impact-on-black-money-117090100077_1.html

  [11] https://timesofindia.indiatimes.com/city/noida/Poor-lose-earnings-and-time-by-being-in-the-queue/articleshow/55695083.cms

  [12] http://www.hindustantimes.com/business-news/mobile-wallets-see-a-soaring-growth-post-demonetisation/story-zwdBi3UGqG1qZD92AEF9GK.html

  [13] https://www.forbes.com/sites/wadeshepard/2016/12/14/inside-indias-cashless-revolution/#5dbf1ffe4d12

  [14] https://timesofindia.indiatimes.com/india/aadhaar-enrolments-up-60-since-demonetization/articleshow/56473761.cms

  [15] http://www.financialexpress.com/india-news/in-telangana-get-tokens-in-lieu-of-cash-but-an-aadhaar-linked-bank-account-is-a-must/452052/

  [16] https://www.economist.com/news/business/21712160-nearly-all-indias-13bn-citizens-are-now-enrolled-indian-business-prepares-tap

  [17] https://www.phonepe.com/en/about_us.html

  [18] https://www.economist.com/news/business/21712160-nearly-all-indias-13bn-citizens-are-now-enrolled-indian-business-prepares-tap

  [19] http://www.thehindu.com/opinion/columns/aadhaar-and-the-right-to-privacy/article10165734.ece

  [20] https://www.theatlantic.com/technology/archive/2017/09/aadhaar-worlds-largest-biometric-database/538845/

  [21] https://www.forbes.com/sites/timworstall/2017/08/08/indias-demonetisation-leads-to-a-24-rise-in-tax-returns-filed/#23e5e1ed1ab0

  [22] https://www.forbes.com/sites/timworstall/2017/02/10/indias-tax-collection-soars-belying-demonetisation-fears/#346288e1ee76

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  • <h3>The Penn World Table</h3><p> The Penn World Table provides purchasing power parity and national income accounts converted to international prices for 189 countries/territories for some or all of the years 1950-2010.</p><p><a href="https://pwt.sas.upenn.edu/php_site/pwt71/pwt71_form.php" target="_blank">Quick link.</a> </p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Congressional Budget Office</h3><p><img width="180" height="180" alt="" src="/live/image/gid/4/width/180/height/180/380_cbo-logo.rev.1406822035.jpg" class="lw_image lw_image380 lw_align_right" data-max-w="180" data-max-h="180"/>Since its founding in 1974, the Congressional Budget Office (CBO) has produced independent analyses of budgetary and economic issues to support the Congressional budget process.</p><p> The agency is strictly nonpartisan and conducts objective, impartial analysis, which is evident in each of the dozens of reports and hundreds of cost estimates that its economists and policy analysts produce each year. CBO does not make policy recommendations, and each report and cost estimate discloses the agency’s assumptions and methodologies. <strong>CBO provides budgetary and economic information in a variety of ways and at various points in the legislative process.</strong> Products include baseline budget projections and economic forecasts, analysis of the President’s budget, cost estimates, analysis of federal mandates, working papers, and more.</p><p> Quick link to Products page: <a href="http://www.cbo.gov/about/our-products" target="_blank">http://www.cbo.gov/about/our-products</a></p><p> Quick link to Topics: <a href="http://www.cbo.gov/topics" target="_blank">http://www.cbo.gov/topics</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>National Center for Education Statistics</h3><p><strong><img width="400" height="80" alt="" src="/live/image/gid/4/width/400/height/80/479_nces.rev.1407787656.jpg" class="lw_image lw_image479 lw_align_right" data-max-w="400" data-max-h="80"/>The National Center for Education Statistics (NCES) is the primary federal entity for collecting and analyzing data related to education in the U.S. and other nations.</strong> NCES is located within the U.S. Department of Education and the Institute of Education Sciences. NCES has an extensive Statistical Standards Program that consults and advises on methodological and statistical aspects involved in the design, collection, and analysis of data collections in the Center. To learn more about the NCES, <a href="http://nces.ed.gov/about/" target="_blank">click here</a>.</p><p> Quick link to NCES Data Tools: <a href="http://nces.ed.gov/datatools/index.asp?DataToolSectionID=4" target="_blank">http://nces.ed.gov/datatools/index.asp?DataToolSectionID=4</a></p><p> Quick link to Quick Tables and Figures: <a href="http://nces.ed.gov/quicktables/" target="_blank">http://nces.ed.gov/quicktables/</a></p><p> Quick link to NCES Fast Facts (Note: The primary purpose of the Fast Facts website is to provide users with concise information on a range of educational issues, from early childhood to adult learning.): <a href="http://nces.ed.gov/fastfacts/" target="_blank">http://nces.ed.gov/fastfacts/#</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
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  • <h3>Federal Reserve Economic Data (FRED®)</h3><p><strong><img width="180" height="79" alt="" src="/live/image/gid/4/width/180/height/79/481_fred-logo.rev.1407788243.jpg" class="lw_image lw_image481 lw_align_right" data-max-w="222" data-max-h="97"/>An online database consisting of more than 72,000 economic data time series from 54 national, international, public, and private sources.</strong> FRED®, created and maintained by Research Department at the Federal Reserve Bank of St. Louis, goes far beyond simply providing data: It combines data with a powerful mix of tools that help the user understand, interact with, display, and disseminate the data.</p><p> Quick link to data page: <a href="http://research.stlouisfed.org/fred2/tags/series" target="_blank">http://research.stlouisfed.org/fred2/tags/series</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
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  • <h3>National Bureau of Economic Research (Public Use Data Archive)</h3><p><img width="180" height="43" alt="" src="/live/image/gid/4/width/180/height/43/478_nber.rev.1407530465.jpg" class="lw_image lw_image478 lw_align_right" data-max-w="329" data-max-h="79"/>Founded in 1920, the <strong>National Bureau of Economic Research</strong> is a private, nonprofit, nonpartisan research organization dedicated to promoting a greater understanding of how the economy works. The NBER is committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community.</p><p> Quick Link to <strong>Public Use Data Archive</strong>: <a href="http://www.nber.org/data/" target="_blank">http://www.nber.org/data/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>The World Bank Data (U.S.)</h3><p><img width="130" height="118" alt="" src="/live/image/gid/4/width/130/height/118/484_world-bank-logo.rev.1407788945.jpg" class="lw_image lw_image484 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/130/height/118/484_world-bank-logo.rev.1407788945.jpg 2x, /live/image/scale/3x/gid/4/width/130/height/118/484_world-bank-logo.rev.1407788945.jpg 3x" data-max-w="1406" data-max-h="1275"/>The <strong>World Bank</strong> provides World Development Indicators, Surveys, and data on Finances and Climate Change.</p><p> Quick link: <a href="http://data.worldbank.org/country/united-states" target="_blank">http://data.worldbank.org/country/united-states</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Federal Aviation Administration: Accident & Incident Data</h3><p><img width="100" height="100" alt="" src="/live/image/gid/4/width/100/height/100/80_faa-logo.rev.1402681347.jpg" class="lw_image lw_image80 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/100/height/100/80_faa-logo.rev.1402681347.jpg 2x, /live/image/scale/3x/gid/4/width/100/height/100/80_faa-logo.rev.1402681347.jpg 3x" data-max-w="550" data-max-h="550"/>The NTSB issues an accident report following each investigation. These reports are available online for reports issued since 1996, with older reports coming online soon. The reports listing is sortable by the event date, report date, city, and state.</p><p> Quick link: <a href="http://www.faa.gov/data_research/accident_incident/" target="_blank">http://www.faa.gov/data_research/accident_incident/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>USDA Nutrition Assistance Data</h3><p><img width="180" height="124" alt="" src="/live/image/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg" class="lw_image lw_image485 lw_align_right" srcset="/live/image/scale/2x/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg 2x, /live/image/scale/3x/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg 3x" data-max-w="1233" data-max-h="850"/>Data and research regarding the following <strong>USDA Nutrition Assistance</strong> programs are available through this site:</p><ul><li>Supplemental Nutrition Assistance Program (SNAP) </li><li>Food Distribution Programs </li><li>School Meals </li><li>Women, Infants and Children </li></ul><p> Quick link: <a href="http://www.fns.usda.gov/data-and-statistics" target="_blank">http://www.fns.usda.gov/data-and-statistics</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
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