AADHAAR
Why in the news?
The international credit rating agency Moody’s
Investor Service has published a report titled ‘De-
centralised Finance and Digital Assets,’ wherein it
supports adopting decentralized digital identity
systems over centralized biometric systems such as
India’s Aadhaar.
RATIONALE FOR AADHAAR:
● Aadhaar is a distinctive identification number
issued to every Indian resident by the Unique
Identification Authority of India (UIDAI).
● During the Aadhaar enrollment process, indi-
viduals’ demographic information is collected,
complemented by biometric data such as fin-
gerprints and iris scans, recognized as unique
identifiers for each person.
● These particulars are securely stored within the
Aadhaar database.
● The primary goals of UIDAI were to ensure that
every resident possesses a one-of-a-kind identi-
fication and to combat corruption by eradicat-
ing the presence of “ghost” and “fake” individ-
uals in welfare programs.
● The government advocates for Aadhaar in nu-
merous other citizen-oriented cash transfer ini-
tiatives.
● By eradicating non-existent and duplicate ben-
eficiaries, the government asserts that Aadhaar
has led to significant cost savings in various wel-
fare schemes.
AADHAAR’S ROLE IN CASH WITHDRAWALS:
● The process of facilitating payments through
Aadhaar for schemes like MGNREGA involves a
series of steps.
AADHAAR
○ First, it requires linking a worker’s Aadhaar
number with their job card.
○ Second, the individual’s Aadhaar must be
linked to their bank account.
○ Third, the correct linkage of the Aadhaar
number with the bank account should be
established through their bank branch,
which coordinates with the National Pay-
ments Corporation of India (NPCI), serv-
ing as the intermediary for Aadhaar-based
transactions.
● Aadhaar essentially serves as the financial
address for individuals, and government-dis-
bursed funds are deposited into their most re-
cently linked Aadhaar-linked bank account.
● To access these funds, individuals can withdraw
money from their Aadhaar-linked bank accounts
through private banking kiosks or private bank-
ing correspondents. These transactions involve
biometric authentication.
● This system is commonly referred to as the Aad-
haar-enabled Payment System (AePS).
CONCERNS REGARDING THE USE OF AADHAAR:
● Quantity Fraud:
○ Common form of corruption, especially in
ration distribution.
○ Dealers provide less than the entitled quan-
tity (e.g., 30 kg instead of 35 kg).
○ Aadhaar does not detect or prevent this
fraud.
● Authentication Challenges:
○ People in rural areas often make multiple
trips to ration shops for authentication.
○ No guarantee of successful authentication.
● Infrastructure Limitations:
○ Lack of reliable internet connectivity.
○ Fading fingerprints among daily wage workers.
○ Inadequate phone connectivity for OTPs.
● Lack of Transparency:
○ Lack of public data on authentication at-
tempts and failures.
○ UIDAI lacks a system to analyze factors be-
hind authentication errors (CAG report,
2022).
● Recurring Payment Failures:
○ Errors in Aadhaar-based payments lead to
payment failures.
○ Discrepancies in spellings between job
cards and Aadhaar databases cause authen-
tication failures.
○ Workers often unaware of the last account
their Aadhaar was linked to.
○ Coercive Aadhaar linking without consent
diverts wages.
● Security Concerns:
○ Banking correspondents in Aadhaar-en-
abled Payment System (AePS) operate with-
out accountability.
○ Multiple biometric authentications grant
access to bank accounts.
○ Cases of money withdrawal and unautho-
rized enrollment in government programs.
○ Example: ₹10 crore scholarship scam in
Jharkhand (2020).
The Unique Identification Authority of India (UID-
AI):
• Statutory Establishment: The UIDAI, estab-
lished on 12th July 2016, is a statutory au-
thority formed by the Government of India.
It operates under the purview of the Minis-
try of Electronics and Information Technol-
ogy, in accordance with the provisions out-
lined in the Aadhaar Act 2016.
• Origins: Originally, the UIDAI was instituted
by the Indian government in January 2009.
It functioned as an attached office under the
authority of the Planning Commission.
• Mandate: The primary mandate of the UID-
AI is to assign a 12-digit unique identification
(UID) number, commonly known as Aadhaar,
to every resident of India.
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