View: SC should not have struck down Aadhaar's use as verification tool by private sector

That the Supreme Court has upheld the constitutional validity of Aadhaar is good. That it has greenlighted the use of Aadhaar for welfare payments disbursal is good. That it has maintained the PAN-Aadhaar-income tax filing link is good.

But that the judgment may prevent private entities from using Aadhaar as a verification tool, thanks to the court’s reading down of Section 57 of the Aadhaar Act, is terrible. And the government must undo what the court has done in this regard.

There are two parts to this argument. First, disallowing Aadhaar as a verification tool in the private sector disempowers millions of aam aadmi as well as some economic migrants from better off classes. By implication, this court verdict is a blow against economic efficiency.


Second, the privacy argument didn’t need prohibition of Aadhaar as a verification tool for the private sector. It needed better data safeguarding measures.

Let’s explain both.

India has always been a difficult country for Indians. The state always demanded layers of verification for even simple requirements citizens had. And rules were always ignorant of evolving economic realities. Address verification in particular assumed that everyone for generations stayed in one residence, where ration cards were issued for everyone, and there was, if you were lucky, a government telephone connection.

That reality had long disappeared as Indian society and economy changed, as economic opportunities expanded. But the address proof requirement continued and imposed huge compliance burden on millions of Indians.

The poor are typically also document poor, and the system was stacked against them. And among better off Indians who moved cities in search of better jobs and shifted rented accommodation to maximise their utility in the rental market, address proof was also a burdensome requirement.

All that changed when Aadhaar was championed by the Modi government as the one-stop identity/address proof for anyone who had got that unique number. So, a poor migrant working in Delhi or Mumbai could get a local SIM card by presenting his Aadhaar card and getting his thumbprint verified. He or she could open a bank account in new, nimble private banks like Kotak and Janalakshmi. Landlords, usually hostile to poor migrants, and employers, suspicious of them, had the assurance that a migrant with an Aadhaar-verified local SIM or a local bank account was who he or she claimed to be.

With the Supreme Court striking down the use of Aadhaar as a verification tool by the private sector, this extraordinary, socially progressive, economically efficient option is now gone. And that’s bad news not just for the poor migrant but also for the middle class young Indian who moves cities and residences to search for better white collar jobs.

Plus, public sector banks were opening bank accounts for poor Indians by asking for the Aadhaar card and using thumbprint verification as a second step check. If even public sector banks stop using thumbprint verification, it’s another blow against the poor because banks were comforted by the second step check, especially when dealing with the migrant poor.

The court’s verdict also increases the cost of customer acquisition for many private sector service companies. Telecom companies could issue a SIM via a thumbprint check with the Aadhaar database. Now, they have to physically verify the address, like before, or they will demand supplementary documents. Same for private banks. The extra cost, when added up, can be huge and therefore seriously economically inefficient. Plus, the court’s verdict also puts a huge question mark on RBI’s KYC norms centred around Aadhaar. And if that creates a whole lot more complications, the extent of economic inefficiency will increase.

Indeed, as some experts are fearing, because the Supreme Court has come down hard on private sector using Aadhaar as a verification tool, the needle may swing back all the way and Aadhaar may not even be accepted by some private entities as an identity proof. If that happens, all outcomes will be even worse.

So, what should the court have done? This brings us to the second part of our argument. Concerns that private entities may hoard biometric data used for verification are valid. But that concern could have been addressed by asking for strict protocols on the use of Aadhaar in the private sector. For example, thumbprint readers could have been issued only by UIDAI, with proper safeguards built in. Also, UIDAI could have been asked by the court to frame additional safeguard protocols for use of Aadhaar by the private sector.

Verification by itself is not violation – that is what the court verdict seems to have missed. Think about it this way – now even if you want to, you cannot use Aadhaar as a tool for verifying who you are for any private sector service.

The court should have kept Aadhaar verification in the private sector as a voluntary option, after asking for additional data safeguards. A faulty argument based on privacy has killed a huge individual and economic convenience.

Therefore, the Modi government must restore Aadhaar’s convenience attribute. It can amend relevant sectoral laws in, say, telecom and banking, allowing voluntary use of Aadhaar as a verification tool in the private sector. It can tailor the national data protection law to take care of this. Or it can think of filing a curative petition in the Supreme Court.

Something, though, must be done. Aadhaar was a great empowering tool for aam aadmi in India’s growing private sector economy. Now, it’s anti-aam aadmi.

DISCLAIMER : Views expressed above are the author's own.