Using Aadhaar in Welfare Schemes

Why in the News?

Recently, the international credit rating agency Moody’s Investor Service released a report, ‘Decentralised Finance and Digital Assets’, which pointed out security and privacy vulnerabilities posed by centralised ID systems like Aadhaar.

• The report advocated for decentralised digital identity systems instead of centralised biometric systems like India’s Aadhaar.
• It has referred that Aadhar carried the burden of establishing authorisation and concerns about biometric reliability.

How has India reacted?

The govt has strongly refuted the claims of the report stating that,

• Aadhaar is “the most trusted digital ID in the world”
• The authors of the report were unaware that seeding of Aadhaar in the MGNREGS database and payment to workers is by direct transfer to bank accounts and does not require authentication using their biometrics.

Rationale for the use of Aadhaar:

1. The Unique Identification Authority of India (UIDAI) issues Aadhaar, a unique identification number given to all Indian residents.
2. For enrolment of Aadhaar certain unique identifiers of individuals are collected that includes:
   1. Demographic details of individuals
   2. Biometric fingerprints
   3. Iris scans 
3. The collected details are stored in the Aadhaar database.
4. The objectives of introducing Aadhaar:
   1. To ensure that all residents have a unique ID.
   2. To curb corruption in accessing welfare programmes by eliminating “ghost” and “fake” individuals.

• Eg: In accessing rations under the Public Distribution System (PDS), an individual is called a ‘ghost’ if they access rations in the name of a dead person, and a ‘fake’ if they access rations even though they are not officially entitled to it.
• With the linkage of Aadhar with ration card, when an individual tries to access rations at a ration shop using biometrics or iris scans, it will be sent to Aadhaar database for authentication.
• This has resulted in substantial savings in welfare schemes through the usage of Aadhaar.
  3. To facilitate several government-to-citizen cash transfer programmes.

What is Aadhaar’s role in cash withdrawals?

1. Aadhar is used for directing payments in MGNREGA through at least three steps:
   1. Aadhaar number of the worker must be linked to her job card.
   2. The Aadhaar must also be linked to her bank account.
   3. Aadhaar number must be linked correctly through her bank branch.
2. National Payments Corporation of India (NPCI), acts as a clearing house of Aadhaar-based payments.
3. Individuals can withdraw money from their Aadhaar-linked bank account from private banking kiosks which uses their point of sale (PoS) machines to authenticate individuals using their biometrics. This is called Aadhaar-enabled Payment System (AePS).

Concerns associated with the use of Aadhaar:

1. Issue of corruption in the form of Quantity fraud.

• For instance, Aadhaar cannot detect or prevent a fraud in which the ration card holder with an entitlement of 35 kg of rice is given only gives 30 kg by the dealer.

2. Need for authentication has led to multiple trips to ration shops by the people, as there is no guarantee that the authentication will work.
3. Hurdles in meeting the biometric authentication requirements such as,
   1. Lack of reliable internet
   2. Fading fingerprints among daily wage workers
   3. Lack of phone connectivity to get an OTP etc. has led to denials
   4. Older women, people with disabilities, or those living in remote areas are more prone to hardships and exclusions.
4. The CAG report of 2022 states that UIDAI did not have a system to analyse the factors leading to authentication errors.
5. Misdirected payments through Aadhaar which happens when one person’s Aadhaar number gets linked to somebody else’s bank account.

• For instance, Aadhaar payments of people got redirected to Airtel wallets.

6. Security concerns:
   1. Banking correspondents using the AePS operate without any accountability framework. 
   2. Some of them ask individuals to biometrically authenticate multiple times in AePS and money from workers’ accounts have been withdrawn or signed up for government insurance programmes without their knowledge.
   3. For instance, the ₹10 crore scholarship scam in Jharkhand from 2020.