Aadhaar Project- Are Moody’s Concerns Valid?- Explained Pointwise

Recently, released report of global rating agency Moody’ has highlighted Moody’s concerns regarding the Aadhaar project of India. In its recently released report “Decentralized Finance and Digital Assets”, Moody’s has highlighted some grave concerns regarding India’s ambitious digital identification (ID) programme for residents- the Aadhaar Project.  The Comptroller and Auditor General (CAG) of India has also previously raised concerns about the Aadhaar Project.

Key Highlights of Moody’s concerns on Aadhaar Project 1. Biometric issues- According to the report, Aadhaar has been resulting in denial of services. The report has questioned the reliability of biometric technologies especially for manual labourers in hot, humid climates, as there are risks of change in their fingerprint patterns. 2. Risk of data breaches due to the Centralized Identification system – Aadhaar is a centralized identification system. This leads to the concentration of sensitive information with specific entities, which increases the risks of data breaches.

Read More- Moody’s concerns on Aadhar-Forum IAS

What is Aadhaar Project?

Aadhaar Project – Under Aadhaar Project, a Unique Identification Number is issued by the Identification Authority of India (UIDAI), to every resident of India. It is a twelve-digit number which is linked to the resident’s demographic and biometric information.

Aadhaar collection authority – The data is collected by the Unique Identification Authority of India (UIDAI), a statutory authority established in January 2009 by the Government of India, under the Ministry of Electronics and Information Technology, under the provisions of the Aadhaar (Targeted Delivery of Financial and other Subsidies, benefits and services) Act, 2016.

What are the advantages of the Aadhaar Project?

Identification of the beneficiaries of the government’s welfare schemes – Aadhaar has helped to remove fake and duplicate identities of beneficiaries. It has been used to filter the list of beneficiaries and stop the leakage of public money.

Targeted delivery of subsidies directly to the bank account – JAM trinity (Jan Dhan Yojana, Aadhaar and Mobile numbers) has been employed for targeted delivery of subsidies. Use of Aadhaar Card for distributing social welfare schemes has led to better targeting of poor which were suffering by leakages. It has led to savings of Rs 50,000 crore per year by plugging the leakages in most schemes. . In the form of DBT scheme for LPG, government has saved Rs 10,000 crore in two years.

Aadhaar has helped in mapping development parameters – In critical sectors of the country like healthcare and education, Aadhaar has been used to map the development processes and parameters. It has also been used to map skilled manpower, based on the vocational training acquired by the individual with the suitable job vacancies/ skill requirements.

Ease in filing of Income tax return and opening of bank accounts – Use of Aadhaar in income tax filing has reduced the number of documents needed for filing income tax. It has made the process more efficient and cost-effective.

Helped to tackle the black money issue – The use of Aadhaar in financial transactions has reduced the menace of black money in the country.

Has been helpful for the geriatric population in accessing benefits- Aadhaar project has been used to transfer pension money on time, issuance of digital Life certificate and easy Provident Fund disbursement.

What has been other issues with the Aadhaar project apart from Moody’s concerns ? 

CAG in its report has highlighted several concerns with the functioning of UIDAI and the Aadhaar project.

1. Deficient data management system of UIDAI- UIDAI manages the Aadhaar project in the country. There are issues in the functioning of UIDAI like issues of data-matching, errors in authentication, and shortfall in archiving.

2. Privacy at risk- UIDAI has not ensured that the applications or devices used by agencies or companies for authentication “were not capable of storing the personal information of the residents, which put the privacy of residents at risk”.

3. Lack of data archiving Policy- UIDAI has lack of data archiving policy and there have been widespread cases of duplication of Aadhaar.

4. UIDAI Charging Fees for Voluntary Update – Initially, poor quality data was fed in during enrolment. However, now, for rectification of that data, UIDAI appeared to have charged people for biometric updates.

5. Authentication failures – Aadhaar project has experienced high rates of failures in authentication, leading to delays in the disbursal of benefits in remote areas with poor internet connectivity. Many Aadhaar cardholders are facing authentication issue while accessing the Public Distribution System.

6. Identity Theft and KYC fraud – Aadhaar data have been used by fraudsters for criminal purposes such as identity theft, Know Your Customer (KYC)-related fraud etc. Ex- Loan scams.

7. Last-mile delivery in rural areas faces issues of lesser Bank penetration- The last-mile delivery is a significant challenge with the problem of lesser banking infrastructure in rural areas and the failure of the banking correspondent model to take off.

8. Concerns about the effectiveness of Direct Benefit Transfer (DBT) application to all schemes – Blanket application of DBT to all government schemes has caused troubles. For example: Application of DBT for fertiliser scheme is being criticised by the farmers as they are finding it difficult to pay high upfront costs for fertiliser and then wait for payments through banks.

9. Issuance of Aadhaar to Minor Children – Issue of Aadhaar numbers to minor children below the age of five, based on the biometrics of their parents without confirming the uniqueness of biometric identity, goes against the basic tenet of the Aadhaar Act.

Read More- CAG concerns on Aadhaar-Forum IAS

What should be the way forward?

Decentralisation of Aadhaar data – In decentralized ID (DID) systems, personal data is saved in a user’s digital wallet and identity verification takes place not via a single, centralized institution but on a decentralized digital ledger such as a blockchain. This increases privacy and reduces the amount of personal information held by intermediaries. For example, Estonia, known for its fully digitalized public services has embraced SSI [Self-Sovereign Identity] to grant citizens complete control over their digital identities.

Increase in banking penetration- There should be an increase in penetration of banks and financial institutions in rural areas. Further, Banking Corresponding agents can be used to educate farmers not to fall into traps of moneylenders.

Better Internet infrastructure to support Aaadhar Project- There is need for infrastructure like cellular towers, cheap mobile plans because without mobile connectivity JAM trinity and aadhaar are meaningless.

Aadhaar has now evolved as one of the primary identity documents and a vital instrument for the targeted delivery of various government scheme benefits. However, Aadhaar number can be misused by some malicious actors. In this light, UIDAI to offer the Masked Aadhaar Card Service which is a significant step.

Read More- Moody’s report on Aadhaar