Aadhaar: A quiet disruption

Having registered one billion Indians, the team behind Aadhaar is now creating a digital infrastructure—the India Stack—that promises to disrupt financial services, make service delivery dramatically cheaper and efficient and boost the startup ecosystem

N S Ramnath

[Photograph by Biswarup Ganguly under Creative Commons]

On any given day, at any of the upmarket cafes that dot Koramangala in Bengaluru, you will find a bunch of youngsters huddled around mugs of cappuccino and americano, trading ideas on how they will solve a problem, build a unicorn, change the world and in the process make tonnes of money. They tend to be engineers who have put in a few years in tech firms before deciding to turn entrepreneurs. They also tend to be supremely confident, utterly unfazed by down values, markdowns and sad stories of how it has become difficult to raise money, hire good talent and so on. Such is the power of ideas.

There is one place in Koramangala that strikes a grander, more audacious note, even by the standards of such ambitions, vision and faith in technological determinism. The people there don’t talk about solving one problem in one sector. They talk about disrupting entire industries. They draw plans not to change one enterprise, but how the entire state machinery works. Their idea of scale is not a few hundred thousand or even a few million; it’s about touching the lives of a billion people.

Listening to them can be like listening to Elon Musk talking about the Mars mission, or to Peter Thiel lamenting about the unambitious. “We wanted flying cars,” Thiel famously said, “instead we got 140 characters.” Only, they are not talking about the fanciful. They are talking about the mundane, about people getting access to money, better healthcare, better education or simply their due from the government. All this for millions of people. With the help of technology.

Every instinct, everything that we know about those who peddle us dreams—especially dreams about the poor—might tell us to shake our heads, smile ruefully and move on. But the least we should do is, take a serious look at their ideas. Because, as Steve Jobs said, the people who are crazy enough to think they can change the world, are the ones who do.

We are talking about the people behind Aadhaar, the world’s largest biometric identity project: Nandan Nilekani, who made his name at Infosys, and went on to lead the Aadhaar project; the band of men he put together to pull it off, within budget and ahead of time; people like Pramod Varma and Sanjay Jain, who quit their marquee jobs to design and build the technology behind Aadhaar; men like Sharad Sharma, former head of Yahoo Labs in India and a venture investor who spends a good part of his time bringing together volunteers who work on the project.

And Aadhaar, the project, is massive.

In May, it crossed one billion registrations. It took just five-and-a-half years to achieve that—the fastest of any digital platform. There are only a handful of platforms across the world that have managed to get a billion users. Most of them have been created by Google, Facebook or Microsoft. The closest any of these come to Aadhaar is Android which reached a billion in five years, eight months.

Every quarter, Aadhaar was registering the equivalent of New Zealand’s population (except that it would have been far easier for New Zealand to implement such a project given its infrastructure, wealth and literacy rates). And Aadhaar had to be accurate at this scale. Mistakes would have been too costly. Even 99.5% accuracy would have been like Singapore getting it wrong for its entire population.

But that’s not what this story is about. By itself, a unique number for every Indian is of no value. The value comes from people and organizations using the Aadhar system to bring down the cost of service delivery dramatically (in the case of mutual funds, from Rs 1,500 to a negligible Rs 10 for authenticating a new user) and opening up choice of service providers for the poor, from education, to healthcare, financial services and ration shops—that’s the big story.

The use cases extend to more prosperous Indians too—for example, easing road toll collection to decongest traffic and reduce waiting time at the toll booth.  

All of that is made possible by the system’s ability to authenticate that a person is in fact who he claims to be—all online, in seconds, using an inexpensive device.

The team is building a number of layers on top of the Aadhaar system. These layers are all digital, open (as in others can work on the application programming interface, or API, to create services) and connected to each other. Think of it as a collection of digital goods. The team calls it the India Stack.

It creates a digital infrastructure for presence-less (no need for physical authentication), paperless and cashless service delivery.

It does so by bringing together five elements:  

  1. e-KYC
  2. Aadhaar Payments Bridge, which essentially turns an Aadhaar number into the person’s financial address.
  3. eSign, a digital signature.
  4. Unified Payment Interface (UPI), which makes sending money as easy as sending an email or an SMS.
  5. A consent layer to share personal data (mark sheets, health records, financial transactions) with a bank, insurer, employer or university for a limited time for a specific purpose.

The India Stack will impact broadly two areas. It can potentially make government services more efficient, and bring down the leakages—the government spends about Rs 2 trillion every quarter. It can give a boost to the startup ecosystem by providing an open, public, digital infrastructure, much like how building highways can boost the economy.

“India Stack is for Bharat,” says Sharad Sharma. “Aadhaar was designed to make life convenient for the average person,” adds Sanjay Swamy, who was a volunteer at Aadhaar and is now a managing partner at venture capital (VC) firm Prime Venture Partners.

It is an ambitious project, and has its share of naysayers. After all, all the technological developments during the past several decades haven’t solved the world’s basic problems—like hunger and poverty. Even if we believe that it can solve problems, can something credible and free be built by a bunch of volunteers?

Sceptics are also concerned as much about the security of all this personal data as about its accuracy.

Indeed, it will need continuous technological improvement and the growth of an ecosystem for disruptive applications for all of it to come together. More on that later. Let’s first understand the intent behind India Stack.

India Stack: The building blocks

It evolved over the past few years because of demand from users, encouragement from the regulators, and the team’s awareness and belief that the possibilities are endless.

Jain, who was the Unique Identification Authority of India’s (UIDAI’s) chief product manager, once sat down to come up with a list of areas where Aadhaar would work. It has some 50 items now, and he isn’t finished yet. It includes a wide range from government subsidies and dealing with highly regulated sectors such as banks, to maintaining your personal data in a digital, sharable format. But Aadhaar alone wouldn’t have been enough to pull these off.

After identity and authentication, the need that arose almost immediately was for physical copies of Aadhaar, especially by bank and telecom companies who needed it as a part of their Know Your Customer (KYC) requirements. Thus came e-KYC, an authorised, digital document that contains the individual’s name, address, gender and date of birth—details that a bank or a telecom company demands. An Aadhaar holder can authenticate his information biometrically, consent to sharing it and digitally send this information to anyone.

Regulators were quick to see the scope of Aadhaar. During his early days at UIDAI, Nilekani got a call from the Reserve Bank of India’s deputy governor Usha Thorat, who spoke about how Aadhaar can be used to create a more inclusive financial system. The result of such conversations—and Nilekani’s own role as an advisor to the National Payments Corporation—was Aadhaar Payments Bridge. So, when a government department sends the direct benefit transfers to an Aadhaar number, the amount is credited to the bank linked to it. The beneficiary is free to opt for any bank.

Yet another layer was added when a bureaucrat asked a simple question. While the IT law had approved digital signatures, there were too few of them. He wanted to know why. The bureaucrat in question was Ram Sevak Sharma, who was the director general of UIDAI, and it was left to Jain and Varma to figure out a way to make digital signature more popular. Their team worked with the Controller of Certifying Authorities to launch eSign. So, you can draft your rental agreement on your mobile phone, digitally sign it, and it would be as good as any physical legally binding document.

UPI, perhaps the most interesting layer of Aadhaar, came up when the team sat together with the National Payments Corporation to develop a system that makes sending money as easy as sending an SMS. Mobile wallets provide that convenience today, but with UPI you don’t have to fill in your wallet in the first place. It uses the 24/7 immediate payment service IMPS. You can send or receive money through a UPI-enabled app to your virtual address (yourname@bankname).

As identity, authentication, documentation, signatures and transactions move online, India will turn into a data-rich nation from being data poor. Hundreds of documents will turn digital (like how stock certificates got dematerialised a few years ago). For example, this year’s CBSE mark sheets are available in digital format. You can give a college permission to access it digitally, just like you would share a document from your Dropbox or Google documents, and obviate the need to photocopy and attest it. There are hundreds of use cases that one can think of. The team is working on a digital locker which will make all of this possible.

And finally the consent layer, which ties in with the digital locker. The team is working on a framework that will let you as a consumer share your data with various entities for a specific period and for a specific purpose. For example, a bank might be interested in your income and expense data to assess your creditworthiness, or you can use your health data to get a better deal from your insurer. The consent layer will address that.

Each of these might seem small by themselves, without the complexity associated with disruptive technologies such as robotics or artificial intelligence. But together, their impact could be far reaching and there are reasons for optimism.

Its simplicity and open-API makes it versatile

Not long back, a team of top Afghanistan government officials was in Bengaluru to know more about the Aadhaar project. The landlocked country was struggling to build its own national identity system while India seemed to have pulled it off at a much larger scale.

They were trying to collect over 50 data points from citizens, which meant that several ministries and departments were involved, which in turn led to endless discussions. As a result, very little happened on ground.

Varma, who was the chief architect of Aadhaar during its early days and continues to be a part of UIDAI as a technology advisor, attended the meeting. As he listened to the Afghan team, it struck him how easily India could have gone in the same way. The Aadhaar team was right in deciding to keep it minimal with just four data points—name, date of birth, gender and address—with an option to add email and phone number.

This minimalism also helped make Aadhaar more inclusive. The fewer details you want, the fewer documents you need to support them.

The most important reflection of this idea is its technical architecture. It follows what is now called an hourglass architecture. An hourglass has a thin waist (the Aadhaar number), but it brings together several layers of applications and several devices above and below it. Its strength lies in its simplicity and ability to work with a large number of systems.

It is a principle they have carried on to other elements of the India Stack. UPI, for example, is just an interface that sits on any banking system, enabling easy transactions on the mobile.

By narrowing the scope of what they would do, the team could think broadly about the role others would play. Srikanth Nadhamuni, who currently heads Khosla Labs and was earlier the head of technology for UIDAI, says that when he was studying the biometric systems across the world, he found that many got locked into one provider, and once that happened the dependency on the provider creeped up. In effect, the customer can be held to ransom because there is only one vendor. UIDAI didn’t want to get into that mess. It gave the specifications, built the APIs to make sure different systems spoke to each other and let the vendors compete.

In the broader market such competition typically leads to lower prices and better quality, and so it was with UIDAI. Prices came down. This had an impact not just on the cost of the project—unlike big government projects, there were no cost or time overruns—but globally the prices came down.

Swamy of VC firm AngelPrime says that it has made the biometric ID system viable for any small country. It’s not just hardware; if they could clone the open API-based model, they would save themselves a lot of trouble, he says.

Consider yet another case. At the core of Aadhaar’s biometric authentication is a de-duplication algorithm, which figures out whether each biometric image is unique. It’s huge, both in terms of scale and complexity. To give the billionth Aadhaar number it has to check a person’s biometric data for uniqueness against 12 billion biometric images (fingerprints and irises). No system is so perfect that it will generate zero error rates. UIDAI enrolled three different vendors to do the task, each using their proprietary algorithm. Those who did better were dynamically allocated more work and thus more money, creating competitive pressure.

While these principles helped Aadhaar achieve scale without cost or time overruns, the value of Aadhaar is not in people having a unique number, but in using it. For Uber or Ola, the number of app downloads is important, but not sufficient. The value really is in the number of times customers use it. That, to a large extent, depends on the number of drivers and passengers on the platform. Once they have sufficiently large numbers, the network effect comes into play. Uber or Ola is not a product, but a platform.

The same dynamics will work with India Stack.

Some of the biggest backers in the government immediately grasped this. When Nilekani and his team presented the idea to the then finance minister Pranab Mukherjee in the early days, he used the metaphor of a railway platform to describe its significance. By itself, and without a broader system behind it, a railway platform has no value. But, with tracks and trains, its impact can be huge. India’s railway system opened up a new world for the rural population. It connected them to the rest of the country, enabled centralisation of some industries—leather processing for example—changed social structure and loosened the grip the caste system had on society.

What sets Aadhaar and India Stack apart is not its technology per se. After all, biometric systems are not new. Apple’s iPhones use biometric authentication to unlock phones and apps. Both Google and Apple have their own payment systems, Google Wallet and Apple Pay. But they are owned and controlled by Google and Apple. India Stack, on the other hand, is open. They are public goods.

With India Stack a good part of that platform is ready. The government has started testing some of its bigger trains—cash transfers for workers under the national rural employment guarantee scheme (NREGS) and for those who have opted for cooking gas subsidy, and in some parts digitisation of the public distribution system. The private sector is showing interest too. In the next few years we will see digital products and apps built around it. Only then will we see the true impact of Aadhaar.

An ecosystem to amplify usage

When people talk about an ecosystem, they talk about entrepreneurs, investors and catalysts (typically industry bodies such as MAIT and Nasscom), says Sharad Sharma, one of the founding members of the think-tank Indian Software Products Industry Round Table (iSPIRT). However, there are three other important elements of an ecosystem.

  1. The government especially playing the role of a market maker.
  2. The regulators making sure that the rules don’t stifle innovation.
  3. And most importantly, availability of public goods.

In the US, universities played such a role—Stanford, for example. In India, Sharma said, the universities are more focused on teaching rather than on research, and the research tends to focus on basic sciences rather than on technology.

In India right now, the different pieces are picking up speed. Not in full measure, or substantially, but in the right direction. Among the educated middle class, entrepreneurship is getting more acceptance than ever before. Startups are finding it easier to attract talent. There is a more vibrant investing community spread across different stages of investments. While there are frequent complaints that they depend excessively on templates borrowed from the US and China, there is also a change. The state agencies have used Aadhaar for subsidies and cash transfers, in effect acting as an anchor client, and seeding a large number of users. Regulators appear to be open. The Reserve Bank of India has approved new payment banks and has said that instead of giving licences in chunks many years apart, it will give licences more regularly. The Securities and Exchange Board of India (Sebi) is in the process of digitizing equity and mutual fund investments through e-KYC. The telecom regulator is also working hard to use technology to balance the power in a sector that tends to benefit the incumbents.

There was a missing piece—public digital infrastructure. This is where the volunteers, who are keen on building software products in India, are making a difference. People like Sanjay Jain who was UIDAI’s chief product officer till the project shifted to maintenance mode and demand on his time and skills came down. He is now with EkStep, a not-for-profit founded by Nilekani, his wife Rohini, and Shankar Maruwada, an entrepreneur. He is in charge of building platforms for primary education at EkStep.

Much of the institutional support that holds together the volunteers comes from iSPIRT. It has brought together a set of people who have realised that there is a need to create a digital public infrastructure to enable creation of businesses.

The initial push came when Nilekani took charge of UIDAI. He had left Infosys on a high note. He had just published a bulky book called Imagining India, which set forth his vision of the future. His interviews and speeches fired up engineers and managers. Some of them took a sabbatical and volunteered time for the Aadhaar project. Some, like Jain, Varma, and Vivek Raghavan, joined full time.

In 2010, my colleague and I did a story about the unique setup that was just coming up—a happy bundling of the tech team in Bengaluru, mostly comprising people from the private sector, many volunteers, working like a startup on steroids and the government agency in Delhi—which navigated the labyrinthine process and political pressure points. The volunteers were there because they believed they were building something big, something transformative. As the project gained momentum, they went back to their own organisations or started something new.

It’s no different today, except that the volunteers don’t work under one roof. They do their day job in tech companies, and volunteer during their spare time conducting hackathons, seminars and workshops, participating in debates and discussions, evangelising the technology. For every element in the stack the ownership rests with the government agencies (UIDAI for Aadhaar, the Controller of Certifying Authorities for e-Sign, the National Payments Corporation for Aadhaar Payment Bridge and UPI.)

Sharma says that volunteering—it comes with various degrees of involvement—involves signing an agreement that precludes volunteers from taking a stake in the companies they deal with or even advisory roles. The best among them don’t even take the credit for all the hard work. “They are like Sherpas. They help the mountaineers climb up the peaks, and they remain in the background,” Sharma says.

How India Stack will change India

Last September, Nilekani took the stage at a TiE event in Bengaluru to persuade his audience that the ground is shaking beneath the traditional banks and financial institutions. His argument was not about the bad loans problem. He was talking about how a number of technology trends are conspiring to create a WhatsApp moment for the financial sector.

His basic argument ran thus: Some years ago, most people exchanged messages on mobile phones using SMS and on internet using chat services such as Google Chat or Yahoo Messenger. When phones got smarter and became an internet device as well, one would have thought that these companies would continue to dominate the messaging space. Yet that privilege went to WhatsApp, a startup with just about 40 engineers. The number of messages sent over WhatsApp is larger than all the SMSs by all telecom players put together. WhatsApp had disrupted the messaging space, and now offers voice service too.

The financial sector, Nilekani said, was facing a similar disruption. Because of the digital infrastructure for cashless (because of UPI), paperless (e-KYC, eSign and digital locker) and presence-less (no need for physical presence to authenticate) service enabled by India Stack. Together this will bring the cost down by a huge factor, increase the reach and open up opportunities.

Financial services are restricted to a small portion of the population because of the cost of verifying identity, evaluating creditworthiness etc., says V Vaidyanathan, executive chairman of Capital First, a non-banking financial services firm. India Stack reduces the cost by moving this online, and the impact on the finance sector will be dramatic.  

Take mutual funds for example. The cost of acquiring a customer is Rs 1,200 – Rs 1,500. A lot of it has to do with collecting documents, verifying them, going back to customers if there are errors. Now, if you do all of it online, the cost dramatically drops to Rs 10.

This could change the economics significantly. If you are spending Rs 1,500 to get a customer, you would use your commission to cover the costs. If your commission is 50 basis points (0.5%; one basis point is one-hundredth of a percentage point), you would approach only those customers who can invest a large sum—a couple of lakhs—to recoup the cost. By default, you would end up excluding those who can invest only a couple of thousands. Sebi’s new e-KYC norms allow this digital migration, and it’s only a question of time before that actually happens.

Sceptics argue that it might take a long, long time. A senior fund manager said that while technology was a good thing, the main bottleneck with mutual funds was customer education. Without that the penetration rate will continue to be low.

Humans, in general, tend to overestimate the immediate impact of technology (and when it doesn’t live up to their expectation, dismiss it) and underestimate its long term impact (and when it finally hits, they end up getting the shock of their lives). That’s exactly the shock WhatsApp gave telecom players.

The India Stack team often uses the example of Rajni, a persona they created to explain how India Stack can transform the financial sector and livelihoods. Imagine Rajni to be a street vendor. Every day she borrows Rs 90 from a moneylender, buys vegetables and sells them to her customers at a markup. At the end of the day, she makes about Rs 130-140, pays back Rs 100 to the lender, and takes the rest home. She ends up paying a usurious interest rate because the cost of servicing small loans is high—more importantly, because she has no other option. A new moneylender is likely to trust her even less, and the rates would be as high.

Now consider how her life changes with India Stack. A lender will know who she is, thanks to biometric authentication, can look at her transactions and take a call on her creditworthiness, send her digital cash, and get paid back in digital cash. Each transaction she does leaves a digital trail, which she can use to borrow on better terms. From being locked in with a single moneylender, she can now choose from many and get better rates. She can now borrow more and increase her income. This is not merely a technologist’s dream. A pilot is going on in Delhi right now.

ICICI Bank’s executive director NS Kannan says that it’s not hard to imagine a scenario where there is no need to carry cash anymore. Globally, three-fourth of all consumer payments happen in cash. But, it’s changing fast. For example, in Sweden only 20% of consumer payments are done using cash—for the economy, it’s just 2%. Developing countries could leapfrog. For years, Kenyans have been able to buy bus tickets or pay for taxi rides using mobile payments. This was not driven by traditional banks, but by M-pesa, launched by a mobile network operator, Safaricom.

Banks are already facing the heat in the US, where a whole range of startups are unbundling the industry. A recent CB Insights presentation on the future of fintech had a slide with a screen grab of Wells Fargo’s landing page with each of its various offerings (loans, wealth management, insurance, banking) tagged to the plethora of fintech companies offering the same service.

In India, Aadhaar and India Stack will act as a catalyst. Adhil Shetty, an engineer who founded BankBazaar, a marketplace for financial services, in 2008, says India Stack “will make it easier for innovative digital pioneers to run faster, reach more people.“

Sharma says there are over 40 startups that are experimenting with India Stack right now, and a few that use it extensively. (See ‘India Stack experiments in banking and finance’.)

India Stack for efficient public services

In 2014, sometime after Narendra Modi came to power, Nilekani sought a meeting with him to discuss Aadhaar. For several months leading up to India’s parliamentary elections in April-May 2014, the fate of the project seemed uncertain. Some politicians from Modi’s Bharatiya Janata Party swore to their constituents that they will pull the plug on Aadhaar when they come to power. They saw it as yet another wasteful project into which the government poured thousands of crores. For Nilekani and his team, scrapping Aadhaar would mean five years of their effort gone waste.

Talking to them however, one gets a sense that it was not about the opportunity cost. Many of them genuinely believe that Aadhaar is a public good—much like a highway that connects two important cities. To scrap it would be like building an eight-lane highway and refusing to let anyone use it.

Modi spent most of his time listening to what Nilekani had to say. He was keen to know how Aadhaar would help the government fix leakages. Nilekani felt that Modi had already made up his mind to go for the project. Gujarat under Modi was among the most enthusiastic adopters of Aadhaar, and there was evidence from other states that it could have a positive impact. For example, after his stint at UIDAI, Ram Sevak Sharma went back to Jharkhand as its chief secretary. He implemented an Aadhaar-based attendance system which turned out to be a success. Modi, who was looking to make the administration more efficient, was impressed.

He also saw the big picture—of how the trinity of Aadhaar, mobile phone and access to banks—could bring about a real change. As a result, his government pushed the banks to open more accounts, even as it stepped on the gas on Aadhaar registrations. It was scheduled to cross the billion mark sometime in September this year, but achieved it a few months ahead of schedule.

More than the number of registrations, its impact is in the savings that it made for the government. The government says it has saved Rs 1,000- 1,500 crore on LPG subsidy, mostly by removing duplicates.

One of the biggest challenges the government faces is in targeting subsidies. Rajiv Gandhi famously said that only 20 paisa of every rupee that the government spends actually reaches the people. There are leakages. The leakages cost the government a lot of money, and those who corner subsidies for themselves deny them to people who need them most. The government’s response to this problem has been to put in more gatekeepers and introduce better checks and balances. There are islands of excellence, but for the most part these haven’t worked.

A typical case is the public distribution system (PDS). Typically, a ration shop works the same way a bank used to work in the pre-computerisation days. You got your banking services at the branch that held your account. With one big difference. While you were free to open an account elsewhere, a ration shop customer is tied to one shop—and had to accept its services, good or bad.

In Krishna district in Andhra Pradesh, which has seen reforms based on Aadhaar, people have more choice. The ration subsidies are tied to their Aadhaar number, and they can get their rice, sugar and other rationed items from any PDS outlet they want. If they see one outlet giving them a poor deal, they vote with their feet, putting pressure on the entire system to get better.

When it comes to giving away cash—as in the national rural employment guarantee scheme (NREGS)—the problem is even more complicated because cash is more fungible and has more uses than rice or sugar. The Aadhaar Payment Bridge solves this problem. It’s now possible to credit the payments directly to a beneficiary’s bank.

What about their access to banks? After all, banking infrastructure in rural areas is still poor and ATMs are mostly concentrated in urban areas. India Stack’s answer is micro ATMs. A bank customer has to just go to one of these micro ATMs, typically a device operated by a banking correspondent, authenticate himself, transfer the amount from his account to the banking correspondent and receive the cash.

With these systems in place, the direct benefits transfer can be applied to any government subsidy—from fertilizer to healthcare to education. It also provides a way to test an idea that is popular among economists—that the government has no business running ration shops or for that matter schools. Leave them to free markets and directly transfer money to the needy. The market will compete to get his money, lowering the cost and improving the service.

It’s not just about the poor. The broader idea of giving unique numbers and building tech layers around it can be applied in other areas as well. Take for example national highways, which the government hopes to fund predominantly through toll collections. But toll collections are hard, and often expensive. It also imposes more costs on vehicles than just the toll—there is waiting time and delays. Recently, a team from IIM Calcutta surveyed major routes in the country and concluded that the total cost of delays caused by check posts, toll plazas and checking by enforcement agencies is over $21 billion. Part of this problem can be solved by electronic toll collection.

In 2010, Nilekani chaired a committee that looked at this issue and suggested a system based on unique identity for all vehicles. A tag on the vehicle, sensors at toll plazas, a charging system (prepaid/postpaid) built on the principles of interoperability and other enabling infrastructure should solve the issue. The same system can be used within cities to manage traffic. Smart cities such as Singapore have used congestion charges effectively. India hasn’t done much about it mainly because it’s hard to implement. Electronic tolling could change all that.

In running a country, ideological differences are hard to resolve. Should the government run schools? Should it guarantee employment to the poor? Should it sell essential food items cheap? Should the government lay off employees? It’s the equivalent of a CEO deciding to change the strategic course of a business. Making it efficient using technology is a different matter altogether. Often it can be done independent of the broader direction an organisation takes. Installing telephones, for example. The promise of India Stack is that it will make the government programmes more efficient, irrespective of the path the government chooses to take.

That’s the strength of technology, but that’s its weakness too. It’s value neutral.

Accepting technology

That makes technology disconcerting to many. In part, it’s because our views on technologies of the future are shaped by popular culture. Films tend to pitch man against machines, and often depict the machines as too powerful and dangerous. The picture that futuristic movies paint is bleak—Blade Runner, Terminator, The Matrix, take your pick.

Of course, such risks do exist. Stephen Hawking, Elon Musk or Bill Gates are by no means luddites, and yet they have expressed their fears about artificial intelligence (AI).

Aadhaar is not about AI, yet it brought cutting edge technology—biometric scanners, digital authentication—for the first time to such a large number of people. It has kindled those fears.

Some fear new technology, not because it will be an all-powerful and efficient system, but because it might turn out to be a dud. (This reflects, yet again, a plot point of John Le Carre's Russia House—that missile technology is dangerous not because it’s advanced and precise, but because it’s not and it could misfire.)

As Aadhaar rolled out there were a range of articles in the media that echoed this sentiment, and the concerns exist to this day. While Aadhaar is pitched as an inclusive project, it could end up excluding a lot of deserving people because the system might end up generating too many false negatives. Government services would not reach the intended beneficiaries, because technology didn’t recognize them.

The standard answer from the people we spoke with was that the system is not perfect, and the glitches would be sorted out. Technology is improving fast. Just a few weeks ago, Samsung launched a tablet with Iris scanner, which is more accurate, because unlike fingers which can get bald because of manual labour, iris works for everyone. It wouldn’t be long before every phone has one.

To be fair, technology has been getting better. During the early days of Aadhaar, the registration system sometimes confused people’s faces with the images on their t-shirts. The issue was sorted out pretty soon.

It would be unwise to dismiss technology by looking at how the first versions work. Information technology tends to get better at exponential rates.

The second set of argument is based on the fear that Aadhaar could turn out to be an efficient and powerful tool in the hands of a state that might not have the best interest of people at heart—an Orwellian dystopia where Big Brother watches you all the time, something that could creep into our personal lives and make it miserable, as it happens in the film The Enemy of the State. The revelations made by Edward Snowden showed that the state can and does indulge in this kind of surveillance. It could hit at the core of democracy and the freedom it guarantees its citizens.

The big question is whether we should pull the plug on the entire system because one can never be 100% sure that it wouldn’t happen; or should we think of ways to fix these issues while using it because it promises to make the lives of a large number of people significantly better.

While reporting this piece, one issue that came up again and again was around protection of data. The staunchest supporters of Aadhaar argued that there is a need to focus on the benefits that this would bring to a large number of people rather than agonise over what’s possibly a First World problem.

However, discussions with those involved in the project suggested that they were indeed agonising over this issue. For example, during the early days of Aadhaar there was a debate on how to deal with the spelling errors that are spotted by an applicant after the details are stored in the laptop. In the Aadhaar system data gets encrypted even before it’s saved in the laptop’s memory. Which means the person entering the data cannot open it once the registration is done. However, there are cases where the applicant notices the error after he sees the receipt. The person doing the data entry can’t refuse to correct it. Some argued that the system should allow the person entering the data to pull it out. That would compromise data security, but it would be convenient for all concerned. Instead of doing that, Varma and Jain wrote code to append the corrections rather than correct the existing data. It was more complex, but it protected the system’s integrity. Over time, Aadhaar has added more checks and balances. For example, every time your identity is authenticated you get a mail giving details about the event. Similarly, it’s now possible for you to block your own biometrics. The consent layer would give more control to users, essentially letting them determine who can access what and when.

Besides the technological checks and balances, India also passed a law earlier this year proposing punishment including fine and jail term for breach of privacy. Sharad Sharma says that while the US has taken a predominantly technological approach to address privacy, and Europe a legal approach, India is taking a techno-legal approach using both technology and law to address the issue.

Neither, of course, can be perfect. Hackers will never stop trying. Governments can always rationalise overreach citing national security. Implementation of law is never easy. But at the same time pressure from activists and users will likely keep the offenders in check. The adage that the price of freedom is eternal vigilance applies to data security as well.   

“I could place those who have opposed Aadhaar in three buckets,” says Jain. “1) Those who don't understand, they have constant fear that the government projects are not well thought through. They change their minds once we explain. 2) Those who oppose on the grounds of privacy, they are afraid that it could get too powerful. You have to respect that view, and make the system more secure. 3) Those who have their own agenda. There's nothing you can do about it. You can't reason with them. You just have to live with them.”

What makes Aadhaar interesting and important is that unlike many other technologies that touch our daily lives—from our smartphones to internet and from television to smart watches and all that we see in it—Aadhaar is not being built in Silicon Valley or a European research institute, but right here in India. And right now.

It’s far from over. As you read this story, a bunch of volunteers are brainstorming, trying to find new solutions to old problems, fixing the glitches. It takes a village to raise a child, and it takes more than one to build something as far reaching as India Stack.

There is increasingly more interest in the project. Sharma remembers organising an event around India Stack about a year ago. There was tremendous response from startups. The initial plan was to host around 150 people, but there were over 320 who wanted to participate. They had to restrict the number to one person per startup. The invites went to VC firms too. But only one turned up (and that VC went back to entrepreneurship).

That was then. Today, there is more interest among VCs. There is a lot of action but most of it is happening in the meeting rooms, in front of computers, and between the ears of those who see a lot of potential. And that’s how disruptions happen, step by step. 

India Stack experiments in banking and finance

  1. ATM withdrawals without debit card, pin: Early signs are already visible: DCB Bank lets customers withdraw money from an ATM by simply authenticating themselves with their biometrics. HDFC Bank is working on a project that will let its customers pay bills in shops without using cash or card.
  2. Cashless transactions that don’t tie you to a wallet: Phonepe, a mobile payments company, which was acquired recently by Flipkart, is built entirely on UPI. This brings a couple of advantages: You can both send and request for money. And unlike in a wallet where it gets credited to your wallet, with all its limitations, the money goes straight to your bank account. You can withdraw that as cash from any ATM, for example.
  3. Helping marketplaces: KredX, a marketplace for bill discounting, that connects connect small and medium businesses with receivables from blue chip companies (which typically takes a month or two) and investors wanting to buy them at a discount (thus improving cash flow for the business). So far it’s a predominantly offline business, based on trust from people knowing each other in markets that have existed for ages. That’s an area waiting to be disrupted by technology and India Stack. Aadhaar will establish one’s identity; digital data, driven in part by the goods and services tax (GST) technology network that will roll out if and when Parliament passes the GST bill, would give authentic credit information. The combined effect would be to bring down costs and increase efficiency.


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namaji blog on Jun 29, 2016 7:48 a.m. said

Great article, that's stuff for a whole book!

Out of the three buckets of opposition, I think the first one (govt-IT-projects-not-done-well) has some valid ground. There seems to be some evidence for it. Among the IT projects of govt, there are many bad ones, and, happily a few good ones. The good ones are extremely well-done (or are improving at a faster pace) and the bad ones reek of mediocrity. The Income Tax website (for end users), e-TDS for corporates are examples of good ones. For its scale, although not strictly govt, SBI did a fantastic job of integrating core-banking and online banking. Other corporate return-filing or compliance websites go through patchy evolution, changing their design or overhauling their process too often, some of them have even regional flavours like bangalore-tds-something-something.in, clearly a bad way to do something in a vast country like India. It's not uncommon to see some projects gone digital for digital sake out of digital India pressure, asking people to upload stray PDF files (entirely useless for analytics) or overdoing it by asking them to upload photographs of people at every drop of a hat.

India also has a tendency to transfer the misery to the general public or end users for jobs that the govt is supposed to do. (ex : TDS, TCS etc). The govt can happily connect all bank accounts of a user with just the PAN where it's available, yet it would ask you for a list of bank accounts, after having asked you to update the PAN against the bank accounts. Ditto for the recent furore on 15H for senior citizens. Till recently, they used to have a separate KYC-id for mutual funds, as if existing IDs weren't enough. It's great the Railways are allowing "any" of a list of IDs, is a good thing, I hope they don't go the insistence route, suspecting every traveller to be a terrorist.

As to Aadhaar itself, I would place it somewhere above average. For its scale and complexity, a few more goodie points as commendation. The article doesn't cover training challenges faced or the de-merits of multiple vendors (while it covers merits). The ones who get the bad vendors can have scanners taking eternity to identify or the having to rub the glass pad with cloth and stuff many times over, taking upto 15 minutes to get one iris-n-palm scan through. The problem could be a good device and a bad desk or vice versa.

I would also join those worried about security breach, India being a free river of corruption, but I am clearly a pessimist in that area. May be achhe dhin are here. I would also be worried about "insistence" on Aadhaar before the seamlessness is established. Mandatory aadhar for "entities", such as companies, with the personal Aadhaar of the executive, and for things like vehicles, sounds funny since they are transient for organizations. All that the consent layer lists are possibilties, like startup ideas, and I would see them as just that, till the pudding is ready.

I didn't know there was so much voluntarism in there, thats fascinating to know, hats off to that. I hope India sees more of that model.

Charles Thomson on Jun 28, 2016 11:21 p.m. said

I see two issues that need to be thought through carefully if Aadhaar is really going to help people at the bottom of the period. First is last name, its not uncommon for many to have a number of different last names or have their last name spelt incorrectly or to have some documents ending with say Kumar and others with their actual name. Ideally Aadhaar should have the option for those who want to have an box showing alias. Often due to circumstances outside the control of BOP they have numerous last names on different documents. When the coffee boy works at one office his boss creates a name for him and then somewhere yet another. Second problem is that its common practice for police to grab any original documents in the possession of the BOP and tell them to collect from the police station. Stronger measures need to be put in place to not allow the capturing of original documents. At the moment most BOP's never carry original documents and at the most just a photocopy. Next time when you are driving in Delhi or anywhere in India note how the police are often pulling over the motor cyles and demanding ID.

Abinash Mohanty, UX Lead on Jun 28, 2016 6:42 a.m. said

It's a nice initiative! However, and as per the given solution "The Aadhaar team was right in deciding to keep it minimal with just four data points—name, date of birth, gender and address—with an option to add email and phone number", Indian citizens will have the same problem when it comes their address verification especially working class people who stays 2-4 years in a city and then shift. This is the problem with all banking sectors and even while applying/renewing passport, etc. they all ask the same question that is "is this your present address?" and if not then you have to provide x,y, and z details as proof of address. It's contextual; the Aadhaar team has to take enough user research + test their hypothesis with banks, other govt. offices to validate whether it will work or not.

About the author

N S Ramnath
N S Ramnath

Senior Editor

Founding Fuel

NS Ramnath is a member of the founding team & Lead - Newsroom Innovation at Founding Fuel, and co-author of the book, The Aadhaar Effect. His main interests lie in technology, business, society, and how they interact and influence each other. He writes a regular column on disruptive technologies, and takes regular stock of key news and perspectives from across the world. 

Ram, as everybody calls him, experiments with newer story-telling formats, tailored for the smartphone and social media as well, the outcomes of which he shares with everybody on the team. It then becomes part of a knowledge repository at Founding Fuel and is continuously used to implement and experiment with content formats across all platforms. 

He is also involved with data analysis and visualisation at a startup, How India Lives.

Prior to Founding Fuel, Ramnath was with Forbes India and Economic Times as a business journalist. He has also written for The Hindu, Quartz and Scroll. He has degrees in economics and financial management from Sri Sathya Sai Institute of Higher Learning.

He tweets at @rmnth and spends his spare time reading on philosophy.

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