Home > Social Sector > The ‘Aadhaar’ of UID Number

The ‘Aadhaar’ of UID Number

Unique Identification Number (UID Number) is a government project which aims to directly address the flaws in Indian Social Infrastructure at its inception.  The project is being steer-headed by Nandan Nilekani, cofounder and former CEO of Infosys.

I came across a Special India report named ‘What’s in a number?’ by CLSA released in May 2010. It states:

The inability of many Indians to prove their identity has contributed to the wastage of social subsidies and diversion of funds to the black market, while creating a “poverty premium” for the poor. Over the next five years, the Unique Identification Authority of India (UIDAI) will issue numbers to 600 million Indians. This massive undertaking should help reduce some of these inefficiencies and inequities, while also creating a US$12-15bn commercial opportunity for consulting, IT hardware and services. This could increase to as much as US$20bn with the long tail impact on banks and telcos.

The report points out to some glaring facts. A country of over a billion people has:

  1. Only around 35 million persons paying income tax
  2. 70 million holders of Permanent Account Number (PAN) cards (to pay taxes)
  3. 60 million passports
  4. 240 million unique bank account holders.

 The report goes on to state:

“We estimate the poor pay US$10-12bn in usurious interest each year as more than 500 million adults are excluded from formal banking. Meanwhile, more than 40% of the government’s US$250bn in subsidy and social spending in select schemes planned over the next five years is likely to be siphoned off, mostly by “ghosts” and undeserving recipients. This comes on top of leakages and losses in public distribution systems, and the old-age pension, Mahatma Gandhi National Rural Employment Guarantee (NREGS) and various healthcare schemes. A robust identity database can drive better service delivery, inclusion across society, compliance and tracking.”

A term that I learnt here is ‘poverty premium’

It is a premium paid by the poor to access basic rights and services. It can range anywhere from 10-50% of the nominal cost of the good or service, states report. What they mean is that a poor has to pay bribes, etc as much as any other person for getting his work done because he/she does not possess any identification document. Poor also land up paying a much higher rate of interest as they borrow from money lenders and are deprived of basic banking facilities due to lack of documents.

Poverty premium borne by those who borrow from moneylenders at nearly US$10bn per year in 2010, and this is set to rise to US$12bn annually by 2015.

Ironically, the government is spending money on social services and obligations but corrupt officials and other unscrupulous elements make most of it. Problems are compounded due to illiteracy and caste, religion and gender barriers.

NREGS, which we all thought was a resounding success, has also been subject to substantial “leakages” according to economist, Surjit Bhalla. NREGA is as much of a dud as predicted by Rajiv Gandhi.’ His analysis showed that wages received by the poor under NREGA totalled just Rs12.7 billion in FY07, as against Rs58.4 billion actually spent on wages. This reminds all of us of the time when Rajiv Gandhi had said that “only 15% of intended benefits reach the targeted recipients” and he was right in saying that.

So, what does the UID project expect to achieve?

According to the Department of Information Technology, Government of India:

The Unique Identity Project seeks to assign a Unique Identity (UID) number to each individual in the country that would remain a permanent identifier right from birth to death of the individual. It offers many benefits:

    1. It would obviate the need to produce multiple documentary proofs of identity for availing of any government service, or private services like opening of a bank account, etc. This would end needless harassment that people face for availing of basic government facilities like issuance of passports, driving licences, Electoral Identity Cards, etc.
    2. Backed by intensive use of technology, it would greatly facilitate easy verification of a person’s identity and enable a single communication to trigger address changes in all relevant agency records.
    3. It would also serve as the basis for many e-governance initiatives incorporating online verification of a person’s identity. UID would enable the government to ensure that benefits under various welfare programmes (like the PDS, Sarva Shiksha Abhiyan and Right to Education Bill) reach the intended beneficiaries, prevent cornering of benefits by a few people and minimize leakages and frauds.
    4. It would also enable financial institutions to exchange information regarding defaulters and encourage responsible borrower behaviour.

UIDAI will offer multiple levels of authentication and is in the process of building an economically viable model whereby, depending on the level of authentication, a fee will be charged from the agency requesting the authentication. According to Working paper – version 1.1 of UIDAI, they are considering a transaction fee of Rs.5 to banks for address verification while account opening. Biometrics confirmation would be charged at Rs 10 while credit card issue process.

While this project aims to be used as a commercial opportunity for the corporate sector as well, there will be major challenges including concerns about privacy and fraud, the risk of political opposition and difficulty achieving critical mass early enough.

UID website link

Categories: Social Sector
  1. Pranav
    May 29, 2010 at 2:05 pm


    Do you have the link to the report ?
    Please share it if you do.

    Thanks !

    • June 1, 2010 at 5:07 am

      Hi Pranav,

      I do not have a link to this report, but i hv a hard copy of the same.
      Will definately share the link as soon as i get it.

      Sonal Thakur

  1. September 17, 2010 at 11:58 am

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