Will Aadhaar lead to fi­nan­cial ex­clu­sion?

The in­sis­tence on link­ing clearly ig­nores the con­cerns of the el­derly and the poor. Nor is the process se­cure

The Hindu Business Line - - THINK - AARATI KR­ISH­NAN

Dream­ing about tak­ing off from work this month for a fam­ily break and some Christ­mas shop­ping? Don’t for­get to take a few ex­tra days off to com­plete the chore that the Gov­ern­ment has set you — link­ing all your fi­nan­cial in­stru­ments to your Aadhaar num­ber.

We hear that the dead­line may be ex­tended but even then you will have to marry your Aadhaar num­ber to all your bank ac­counts, de­mat ac­counts, mu­tual fund fo­lios, life and gen­eral in­sur­ance poli­cies, credit cards and post of­fice ac­count by March 31 next year.

Rule shift

But wait. Wasn’t Aadhaar sup­posed to be com­pul­sory only for cit­i­zens avail­ing them­selves of wel­fare schemes funded from the Con­sol­i­dated Fund of In­dia? And isn’t the Supreme Court set to hear a bunch of pe­ti­tions ques­tion­ing its con­sti­tu­tional va­lid­ity?

Un­for­tu­nately, though Aadhaar’s orig­i­nal in­tent was to en­able tar­geted sub­sidy de­liv­ery, the Cen­tre has since de­cided to use it as a sleuthing tool to track down black money. In June, it no­ti­fied its new Preven­tion of Money Laun­der­ing (Main­te­nance of Records) Sec­ond Amend­ment Rules 2017. This re­quired all fi­nan­cial firms to com­pul­so­rily col­lect Aadhaar and PAN de­tails for KnowYour-Client re­quire­ments by De­cem­ber 31. If a client doesn’t pos­sess an Aadhaar num­ber, she must fur­nish proof that she has ap­plied for one. Only those who are ‘not el­i­gi­ble’ to ap­ply for Aadhaar are off the hook.

Fol­low­ing this no­ti­fi­ca­tion, reg­u­la­tors such as the RBI, SEBI and IRDA have ‘ad­vised’ fi­nan­cial mar­ket par­tic­i­pants to pro­ceed with Aad­haar­link­ing. This is why, lately, fi­nan­cial firms have been hold­ing a gun to your head ask­ing you to fur­nish your Aad­har. Ac­counts that re­main un­linked by the dead­line can be frozen.

Why the fuss

Set­ting aside con­cerns about Big Brother delv­ing into their fi­nances, or­di­nary savers face four prac­ti­cal prob­lems in com­ply­ing with the Aadhaar dik­tat.

Time-con­sum­ing: Aadhaar-PAN link­ing on IT re­turns was a two-step process, but link­ing Aadhaar to all of one’s fi­nan­cial sav­ings en­tails well over a dozen steps. The process is time-con­sum­ing be­cause key fi­nan­cial prod­uct providers and their reg­u­la­tors have not man­aged to cre­ate a cen­tralised reg­istry for in­vestors.

So, if you take the sim­ple ex­am­ple of a mid­dle-class saver who op­er­ates two bank ac­counts, has two credit cards, one de­mat ac­count and six mu­tual fund schemes, two in­sur­ance poli­cies and Pub­lic Prov­i­dent Fund, that’s 12 dif­fer­ent en­ti­ties he’s got to li­aise with. Banks and in­sur­ers re­quire you to in­di­vid­u­ally link ev­ery ac­count or policy you own. Mu­tual funds re­quire each fo­lio to be Aadhaar-linked and this re­quires you to ap­proach four dif­fer­ent reg­is­trars.

True, as all of them of­fer dig­i­tal modes (net bank­ing, on­line, SMS), each link­ing may only take a few min­utes of your time, if ev­ery­thing works well. But the prob­lem is that it of­ten doesn’t.

Dig­i­tal divide: Us­ing the on­line mode for Aadhaar-link­ing re­quires fa­mil­iar­ity with dig­i­tal bank­ing, a ro­bust in­ter­net con­nec­tion and un­in­ter­rupted phone/ email ac­cess. This poses se­vere prob­lems for se­nior cit­i­zens and the poor who lack dig­i­tal ac­cess. Even dig­i­tally savvy folk of­ten find their at­tempts stymied by name/ad­dress mis­matches be­tween their in­vest­ment ac­counts and the Aadhaar data­base.

Given the time and ef­fort all this en­tails, fi­nan­cial in­vestors are quite jus­ti­fied in ask­ing why they must jump through so many hoops to hand over their tax-paid money to a third party. Af­ter all, for many years now, In­dian fi­nan­cial firms have on­boarded in­vestors only af­ter elab­o­rate KYC pro­ce­dures re­quir­ing mul­ti­ple doc­u­ments — iden­tity and ad­dress proof, PAN and even in-person ver­i­fi­ca­tion. They also sub­mit truck­loads of data to the tax­man on high­value trans­ac­tions and TDS de­duc­tions. So, by re­quir­ing Aadhaar-link­ing now, is the Cen­tre ad­mit­ting that the tax de­part­ment hasn’t re­ally used all this data to pin down money-laun­der­ers? If so, can we have as­sur­ance that Aadhaar will suc­ceed where PAN and KYC rules have failed?

Se­cu­rity risks: The Aad­har Act 2016 takes a very se­ri­ous view of mis­use of col­lected data or the breach of con­fi­den­tial­ity. The UIDAI is pro­hib­ited from shar­ing your bio­met­ric or de­mo­graphic de­tails with any­one, ex­cept un­der Court or­ders or na­tional se­cu­rity con­sid­er­a­tions. En­ti­ties that col­lect Aadhaar are re­quired to in­form you of the pur­pose, use it only for ver­i­fi­ca­tion and re­frain from stor­ing or dis­sem­i­nat­ing it. The Act spec­i­fies 3 years’ im­pris­on­ment and fines for any breach.

But while the statute ap­pears fool-proof, en­forc­ing it is the up­hill task. For in­stance, many fi­nan­cial firms have rolled out a pa­per mode for dig­i­tally-chal­lenged cus­tomers to ap­ply for link­ing. These doc­u­ments may be han­dled by a wide va­ri­ety of em­ploy­ees at these firms, sub­ject­ing the data to leak­ages and mis­use. Then there are cy­ber scam­sters. Lately, email ac­counts are be­ing bom­barded by Aadhaar-link­ing tips from du­bi­ous ‘ser­vice-providers’. LIC had to warn its pol­i­cy­hold­ers that it had not rolled out any SMS mode for Aad­har link­ing, though such a link was do­ing brisk rounds.

Se­cu­rity con­cerns could have been al­layed, if reg­u­la­tors had en­abled Aadhaar-link­ing through a cen­tralised por­tal, in­stead of re­quir­ing in­vestors to deal with dozens of pri­vate en­ti­ties.

Bio­met­ric fail­ures: Many In­dian savers, de­spite be­ing quite will­ing to en­rol for Aadhaar find them­selves un­able to do so be­cause their bio­met­rics fail to read at the Aadhaar touch­points.

Folk be­yond the age 50 com­plain of en­rol­ments be­ing re­jected be­cause their fin­ger­prints have faded with age. Iris scan­ners are not widely avail­able, and are known to trip up too. Bio­met­ric fail­ures also foil at­tempts by the dis­abled or those en­gaged in phys­i­cal labour from se­cur­ing Aadhaar. The UIDAI dash­board re­veals that, on a ran­dom re­cent day, its pan-In­dia en­rol­ment net­work re­jected 1 ap­pli­ca­tion for ev­ery 7 that it ac­cepted.

For savers with bio­met­ric chal­lenges, Aadhaar-link­ing causes anx­i­ety not only at the time of open­ing an ac­count, but also at the time of ev­ery sub­se­quent au­then­ti­ca­tion. Such savers may lit­er­ally live in daily fear of los­ing con­trol of their le­git­i­mate fi­nan­cial as­sets. It is only hu­mane that they be al­lowed to pro­vide al­ter­na­tive doc­u­men­ta­tion, in place of Aadhaar, to prove their iden­tity.

The NDA regime has achieved phe­nom­e­nal suc­cess with fi­nan­cial in­clu­sion, mainly be­cause it has sim­pli­fied the on-board­ing process for aam aad­mis seek­ing to open bank ac­counts. It would be an irony in­deed if the Aadhaar, which has been so ef­fec­tively used as an in­stru­ment of in­clu­sion, now turns into an in­stru­ment for fi­nan­cial ex­clu­sion of In­dian savers.

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