Aadhaar: KYC silver bullet or constitutional misadventure?
11 Jul 2017

The last decade has seen poorer nations develop at a staggering pace, and some of the most striking changes have taken place in India. It is the world’s largest democracy, a federation of 1.3 billion people in 36 territories, belonging to over 2,000 ethnic groups and speaking over a hundred languages. Partly due to this enormous diversity, national institutions have, in the past, been rickety. But in the last 18 months several highly significant steps have been taken to centralise and rationalise the Indian economy. These range from the national Goods and Services Tax to the lightning-fast demonetisation programme, which took trillions of rupees in cash out of the Indian economy in the space of a few weeks.

Underdiscussed, however, has been the slower-paced but perhaps more consequential national identity programme, Aadhaar (‘base’ or ‘foundation’ in Hindi). Aadhaar, which was initially launched in 2009, takes the form of a unique alphanumeric string attached to biometric data, specifically iris scans and fingerprints. Since even identical twins have different fingerprints and irises, the system is (in theory) a foolproof form of national identification, making fraud more difficult and verification easier.

Enrollment in the programme is not mandatory, but it is gradually becoming harder to access certain benefits without Aadhaar. The state of Tamil Nadu is already introducing compulsory, ‘smart’ Aadhaar-linked cards for recipients of the ‘ration’, a package of certain basic benefits for the poor. In June, after some differing opinions in previous cases, the Supreme Court permitted (pending a full hearing before a ‘constitution bench’ of the Court) a requirement that an Aadhaar number be given in order to access federal social benefit schemes. The government also plans to make an Aadhaar number compulsory for operating a bank account and filing tax returns. Mandatory or not, penetration does not seem to be an issue: if official figures are to be believed, more people have an Aadhaar number (around 90% of Indian residents) than are able to read (around 70%).



The intention of the Aadhaar programme is to enable the federal and state governments to save money, collect more tax and crack down on fraud. There have been some encouraging early results, including alleged enormous savings of 340 billion rupees (around US $5 billion) in relation to the direct benefit transfer scheme, though these figures are disputed and unclear. There have, however, been cracks in the system, with a major leak of over a million pension-linked Aadhaar numbers in April and perhaps in the region of 130 million more leaked through various government schemes. Add this to what seems to be rampant corruption in the administration of the system, and banks duplicating Aadhaar information, and the sytem’s claimed “inherent features of Uniqueness, Authentication, Financial Address and e-KYC” start to sound questionable.

Yet if the kinks can be ironed out, Aadhaar could offer enormous benefits in the fight against financial crime. Take the idea of e-KYC, for example: with the new Aadhaar cards rolling out, KYC procedures for consumers and businesses are expected to become near-instantaneous, a major boost for business confidence in a booming economy seeking more foreign investment. Moreover, if KYC were to be biometrically foolproof, money laundering would become much harder. India is already making substantial progress on its long-standing AML/CTF problems, and locking bank accounts to biometric data could be a great step forward. Substantial progress is also expected on tax evasion. Even Skype is getting on board, taking advantage of the personal identification that Aadhaar offers to give its callers peace of mind.

The cost in terms of privacy and the rule of law may, however, be severe. There are already serious questions over whether some of the Aadhar goals are legally provided for by Congress, or are even constitutional. Prime Minister Narendra Modi’s government was recently accused of “constitutional misadventure” in its approach to legislation to effectively forbid cattle slaughter nationally, and similar tactics are being used to implement Aadhaar requirements. A hallmark of the Modi government so far has been its use of its powers to make secondary legislation in innovative and perhaps questionable ways. The Supreme Court has shown a willingness to to compromise over Aadhaar, but it is not clear quite how far that will be taken in substantive constitutional review.

The body that oversees Aadhaar, the Unique Identification Authority of India, has compared it to national identity programmes in Europe. Yet no European identity programme is quite as ambitious as Aadhaar. Constitutional wrangles are not so surprising in the early implementation of a project of vast scale in such an enormous and complex country. Just as in Europe, though, privacy concerns and legal hurdles may slow down or halt its implementation. There is also the risk that a major leak could render the whole project of confidential, foolproof identification functionally impossible. The potential benefits are clear, but as Aadhar edges towards its tenth birthday in 2019, the costs are only just beginning to become apparent.





Richard Nicholl (@rtrnicholl) is Legal Editor for a leading provider of corporate legal intelligence. He also works as a freelance political commentator and investigative journalist.

Advance your CPD minutes for this content, by signing up and using the CPD Wallet