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200 px (Photo credit: Wikipedia)





In its short life, the Unique Identification Authority of India (UIDAI) has seen its fair share of skirmishes. Its latest skirmish is with an arm of the finance ministry, thedepartment of financial services (DFS), the genesis of which can be traced back to their different models to make payments.

Under the UIDAI model, Aadhaar forms the basis of every transaction. UIDAI plans to capture every person’s fingerprint and iris scan and store it on a central database.

Also read: How Congress can use cash transfers as a main weapon in the 2014 elections

So, when the government transfers money, to avoid duplication, it does so only to Aadhaar-verified accounts. Likewise, for transactions. When a villager wants to, say, withdraw money from her bank account, her fingerprint will be verified on a handheld machine of an agent. That scan will travel for instant verification to the central database.

On verification, the agent gives her the money. The DFS has other ideas. Under its current secretary, DK Mittal, it has been aggressively pursuing its mandate of financial inclusion. A senior official of DFS says, on the condition of anonymity, its thinking is that Aadhaar will take time to reach everyone and that cash transfers can be rolled out without Aadhaar. A senior UIDAI official, who did not want to be named, describes this as a purely “anti-Aadhaar play”.

The DFS plan rides on an architecture created by the National Payments Corporation of India (NPCI), which was set up to create a national payment architecture. This National Accounts Clearing House (NACH) can make cash transfers into beneficiary accounts using their IFSC codes and bank account numbers. This system, which is essentially a beefed up version of the Electronic Clearing System (ECS), can handle 10 million transactions a day now and 40 million transactions per day after six months.

Eventually, says M Balakrishnan, chief operating officer of NPCI, the Aadhaar payments bridge will be subsumed into the NACH. “This will give the government flexibility to use either Aadhaar or bank accounts to make payments,” he says. But the story gets complicated as one moves closer to the field. NACH is not Aadhaar-dependent-it doesn’t use Aadhaar to identify the beneficiary’s bank account, but rather uses IFSC codes and bank account numbers.

As such, it is akin to the systems already being followed by the government to make NREGA payments electronically. District administration and panchayat officials send to the state department a list of those who worked on a worksite, their bank account numbers and the amounts to be paid to each of them. The state department, in turn, asks the lead bank to credit the money into the workers’ accounts.

The UIDAI official says the DFS-NPCI model does not close the payment loop. “Aadhaar has created a system where biometric authentication at the last mile also tells us the correct person got the money,” he says.

“In the DFS system, that loop of confirmation-the targeted beneficiary received the money-will not be closed.” Put another way, the UIDAI system uses biometrics to verify twicewhen money is deposited into an account and when money is withdrawn from it. By comparison, the DFS-NPCI model does it only in the second leg, by verifying biometrics with the bank; in the first leg, it relies on bank account number.

Adds Himanshu, a professor in JNU: “If the government later decides to migrate everything to Aadhaar, we might well find that the biometrics captured by the banks cannot be compared with those in the Aadhaar servers. We might need to capture biometrics all over again.”

UIDAI feels its way is the best. The UIDAI official points out that Mittal of DFS, who has stamped his personality on many recent decisions on financial inclusion, is due to retire in January. The UIDAI, he adds, might wait for him to retire or escalate the matter with finance minister P Chidambaram now. How this plays out will determine the cash transfers architecture that finally takes shape.