The "Aadhaar" of Direct Cash Transfer is more of assumptions, less of ground-level realities-MS Sriram

-The Economic Times

On November 9, 2012, the government announced that from January 2013, 51 districts of the country would be subjected to Aadhaar- based direct cash transfers (DCT). We need some basic answers before we get to term the initiative as a game-changer.

Aadhaar and the link with bank accounts: The Reserve Bank of India, initially having notified that Aadhaar number as valid for opening a bank account for know-your-customer norms, withdrew the notification and set up a group to examine the effectiveness of Aadhaar for banking. Presently, Aadhaar is a proof of identity; not an evidence of address yet.

So, is Aadhaar the solution?

Nandan Nilekani believes so, though he has shown a dual face on this aspect. When attacked on issues of privacy, he has asserted that Aadhaar collected only biometric identification and did not profile residents. It would give a Yes/No answer; it was just a platform, an enabler. But talking about 'fixing' the system, he has extended the scope of Aadhaar as a right to open bank accounts.

Aadhaar is an identity platform.

The decision to operate a bank account is with the banker and we do not seem to have understood what this entire line of transaction does to the operations and bottom lines of banks. The banks are listed, their performance tracked by the markets and the rewards are based upon basic profitability parameters as per the statement of intent that the bankers sign with the government.

The role of multiple agencies: Except the channel through which the money moves, there is no change in the basic architecture. Classifying a family as poor, allotting NREGA work, maintaining musters, identifying beneficiaries for scholarships, pensions, etc, will be done under the extant decision architecture.

Last mile, logistics and structural scaffolding: Finally, the cash transfers go to the bank. The last mile between the bank and the customer is designed to work through a business correspondent (BC). This is the weakest and the most muddled link. It does not seem to be moving in a solid direction. Fixing petty corruption using Aadhaar needs much more structural scaffolding.

If DCT is all about converting benefits moving in the form of cash to a bank account through technology, there are no ideological issues. The issues are purely physical.

The problem is complex and we don't have the architecture for sorting out the last-mile issue between the banker and the customer. Nilekani has proposed micro ATMs: a manned counter that dispenses cash against biometric authentication.

Nilekani's idea in differing conditions, with focus on testing the system under stress conditions.

Quick-fix solutions?: The latest fix is through the new improved micro ATM architecture where BCs sort out the last mile. Technology provides a fix on authentication and transaction recording. This assumes that the physical connectivity between the branch and the customer through the intervention of a human being fixes the issue.

But the cash has to be delivered physically. With 1,50,000 post offices, and postmen visiting all the habitations regularly, with an instrument of money order, we have not been able to sort out the problem of transferring the cash from the coffers to the beneficiaries.

The finance ministry has not convincingly established the business case for a BC. Do we have an idea how a BC would do it better? The answer would be in commissions and incentives. Agreed.

But where is the business case to the banking institutions if these costs are loaded? Does it work at scale?

Too much is loaded on to a single intervention, involving commercial institutions, without a strong business case.

The approach of the government is worrisome. It may be a part of the measures in the run up to the 2014 election is the simplicity with which the solutions are offered. That the entire country can take a single solution; that the solution can be offered through the banking system; that the only impending problem was establishing identity; and that Aadhaar will sort out issues much more than identity and fix leakages and petty corruption.

The commercial sector would have looked at this through the lens of segmentation, test marketing and local strategies. The government believes in standardisation and scale.

Even if Aadhaar number is subjected to multiple pilots in several locations, it is difficult to imagine how these pilots have informed this aggressive rollout of cash. This space is getting to be interesting and we need to watch for more action.