Yet another Aadhaar-enabled scam: When will the government wake up?

In a recent investigation of scholarship schemes in Jharkhand, “Many ways to dupe a poor student,” the Indian Express brought to light how social security benefits being transferred via the Aadhaar-based Direct Benefit Transfer (“DBT”) system are being siphoned off by a nexus of business correspondents, agents, banking staff and school staff, with beneficiaries completely left in the dark.

The leaks and malpractice along the chain in the Aadhaar-based Direct Benefit Transfer of scholarships exposed by The Indian Express are not isolated instances but are an inevitable part of the design of the Aadhaar-based DBT system, as several features of this system enable these types of scams or “diverted payments”.

Three successive governments in India have pushed for mandatory Aadhaar enrolment and linking to bank accounts, even in the absence of an adequate legal framework and a corresponding electronic and bank infrastructure, claiming it would make welfare delivery better targeted, efficient, and free of middlemen. Yet, there is silence when corruption and theft of public funds enabled by the Aadhaar-DBT system are brought to light with increasing frequency. Such scams have been seen multiple times, including the “LPG scam” which was widely reported in 2017. In that, people’s LPG subsidies were diverted, via the Aadhaar-linked DBT process, to unrelated Airtel payment banks that they had no access to. 

Despite being written about extensively by researchers and activists no action has been taken to fix the systemic issues that enable these scams.

With the Aadhaar-based DBT system, beneficiaries are unaware of how and when their personal details, including Aadhaar numbers, are used to divert payments. Often real beneficiaries complain about not receiving the amount transferred via DBT in their bank accounts, as government departments create multiple bank accounts to transfer subsidies to, without the knowledge of the person in whose name the account has been created. This method, of creating new accounts without the consent of beneficiaries in order to transfer subsidies, has made it easy for scammers to replace the bank account numbers of actual beneficiaries with unrelated accounts that beneficiaries have no access to. When DBTs are transferred to bank accounts, there is no reliable and accurate system to check if it went to the intended beneficiary.

However, neither the UIDAI nor the Cabinet Secretariat that supervises the DBT Mission have taken responsibility to provide transparent and credible redress methods, clear public information on who is responsible for solving these errors, or compensation for those affected by these systemic flaws.  

“Direct Benefits” to Scammers

Technological systems, praised as transparency measures, are often opaque and do not allow either beneficiaries or the public to evaluate them. The administration’s push to adopt these systems has already cost the lives of scores of citizens who were not able to access their PDS entitlements because of Aadhaar-linkage based errors.

The “Aadhaar Payments Bridge” the payment mode used for Aadhaar-based DBT transfers, has altered the way in which money is transferred from the Consolidated Fund of India to the bank account of an individual beneficiary, by adding additional layers to the transaction, with no additional checks for transparency or accountability.

In the older system of Direct Benefit Transfers, conducted through a NEFT transaction, the Reserve Bank of India was the sole “middle layer” between banks. In contrast, in the new system, the National Payments Corporation of India (NPCI), a private organisation, operates as the “clearing house,” using the “Aadhaar Payments Bridge system”.

Under the Aadhaar Payments Bridge system, Aadhaar numbers replace bank accounts as the “financial address” of the beneficiary. The “Aadhaar mapper,” created and managed by the NPCI, links the Aadhaar number to the bank account number, to facilitate the transfer of incoming funds. However, this linkage is done arbitrarily to the “last linked” bank account, and with no way of checking whose account it is. Although beneficiaries’ consent is supposed to be a prerequisite to this linking or mapping”, it is totally absent in practice, leaving beneficiaries in the dark about which accounts have been created in their names or linked to their Aadhaar numbers.

This has introduced an additional layer of complexity and opaqueness into the payments system, as the bank account(s) linked to the Aadhaar number are only available with NPCI, a private organization, with no way of alerting the beneficiary whose Aadhaar number has been used.

Additionally, multiple central authorities taking over the role of clearing payments directly to the bank accounts of beneficiaries has detrimental implications on federalism and the basic tenets of decentralization, as state governments and elected representatives at the District, Block and Gram Panchayat level have no authority or control to manage DBT payments.

This has been amply demonstrated in the case of Jharkhand where middlemen and corrupt officials succeeded in abusing the systemic faults in the Aadhaar-based DBT system to siphon scholarships meant for students from minority families. They were able to create fake beneficiaries, multiple bank accounts and incorrectly seed bank accounts to Aadhaar numbers. It has clearly demonstrated the total ineffectiveness of the Aadhaar-based DBT architecture in checking corruption, and the urgent need for reform. 

We make the following demands to the DBT Mission under the union cabinet secretariat, the UIDAI, and the Controller General of Accounts: 

  • Aadhaar-linked DBT be made optional for welfare schemes.
  • The Central Government must develop an accountability framework for the implementation of DBT schemes, including:
    • provisions for citizens to file grievances through multiple modes;
    • dated acknowledgement of grievances;
    • time-bound redress of grievances through a decentralized mechanism  
    • an independent appellate mechanism to oversee its credible compliance.
  • The Central Government lays down norms to pinpoint accountability across Government Departments, autonomous bodies, statutory authorities, parastatal organizations and private agencies for violation of citizens’ rights to entitlements. 
  • The DBT Mission should permit social audits, as per the Auditing Standards of Social Audit laid down by the Comptroller and Auditor General of India, of the implementation of DBT schemes, particularly with regard to the processes of beneficiary identification, and the verification of payment transfers in order to ensure that the systems meet the highest standards of transparency and accountability.
  • The DBT mission and Controller General of Accounts must publish all details relating to the implementation of DBT schemes suo moto in the public domain, as mandated by Section 4 of the Right to Information Act. Information disclosed should contain details regarding the number of applicants, the status of heard applications, status of payments, and the list of payments that have failed.   

Read more about the last mile challenges faced by NREGA workers in accessing their wages, after wages have been credited to the workers’ bank or postal accounts in Length of the Last Mile, published in November 2020 by LibTech IndiaRoughly one in twenty wage payment transactions get rejected due to technical errors such as incorrect account number or incorrect linking of Aadhaar with bank accounts.”